Economic and Financial Review


Central Bank of Nigeria


Interest rate, Africa, Banking


A major indicator of banking sector efficiency is interest rate spreads (IRS), which have been found to be very high in African countries. This paper analysed the determinants of interest rate spreads in Sub-Saharan African (SSA) from a macro perspective, that is, using aggregate banking sector data, and focusing macroeconomic and market determinants. The study used ex-ante measure of spreads, that is, differences between interest rates on lending and deposit. Using annual data covering 33 countries, the result to obtained from the paper suggested that different market and macroeconomic policy variables played significant role in explaining variation in IRS in the SSA region. The study showed that out of all the market determinants, only the scale variable and reserve requirement are of little importance in the determination of spread, while bank development is irrelevant. On the other hand, the macroeconomic variables, such as the extent of government crowding out in the banking sector; public sector deficits, discount rate, inflation level, and money supply, are much more significant in the determination of the IRS. This indicates that changes in IRS it SSA region respond more to changes in macro variables than to changes in market variables.

Author Bio

Folawewo is a staff of the University of Ibadan while Udeaja is a staff of the Central Bank of Nigeria.

Publication Title

CBN Economic and Financial Review





Recommended Citation

Folawewo, A, O. & Udeaja, E. A. (2009). Determination of interest rate Saharan African countries: a analysis. CBN Economic and Financial Review, 47(1), 63-88.

Included in

Finance Commons



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