What Drives Bank Lending Spreads and Collateral Requirements in the Kyrgyz Republic

September 11, 2020

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Iulia Ruxandra Teodoru. What Drives Bank Lending Spreads and Collateral Requirements in the Kyrgyz Republic, (USA: International Monetary Fund, 2020) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Limited access to finance and its high cost have contributed to relatively low levels of private investment and subpar growth in the Kyrgyz Republic. Interest rate spreads have moderated in recent years, but remain high from both a regional and global perspective. At the same time, collateral requirements applied by banks are onerous and also constrain the quantity of credit supplied. This paper identifies a range of factors that could lower spreads in the Kyrgyz Republic: more competition, higher capital, lower credit risk, larger loan size, lower deposit rates and external funding costs, as well as a stronger legal framework. Lower operating costs appear critical to reduce relatively higher spreads for small and medium-sized banks. At the same time, a stronger legal framework and greater transparency on borrowers’ creditworthiness would help reduce the high collateral requirements. Reforms in all these areas would support greater financial inclusion in the aftermath of the pandemic, and could thus be a key source of sustainable and inclusive growth in the Kyrgyz Republic.

Subject: Bank credit, Banking, Collateral, Credit, Financial institutions, Legal support in revenue administration, Loans, Money, Revenue administration

Keywords: Average cost, Bank competition, Bank credit, Bank lending spreads, Bank loan, Bank size, Bank-financed investment, Central Asia, Collateral, Concentration index, Credit, Financial intermediation, Financial leverage, Group loan, Interest rate spread, Intermediation cost, Investment activity, Legal support in revenue administration, Loan s, Loans, Market power, Pressure bank, Return on assets, Uncollateralized loan, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/186
Stock No:

WPIEA2020186
ISBN:

9781513556543
ISSN:

1018-5941

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