Bank heterogeneity in interest rate pass-through: A panel evidence of Pakistan

This article examines the role of bank-level characteristics in determining the nature of interest rate pass-through from monetary policy rates to commercial banks’ lending rates in Pakistan. Several bank-level factors, namely market size, liquidity, capitalisation, profitability, and competition le...

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Bibliographic Details
Published in:Asian academy of management journal of accounting and finance 2021-12, Vol.17 (2), p.107-132
Main Authors: Nizamani, Abdul Rahman, Abdul Karim, Zulkefly, Zaidi, Mohd Azlan Shah, Khalid, Norlin
Format: Article
Language:English
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Summary:This article examines the role of bank-level characteristics in determining the nature of interest rate pass-through from monetary policy rates to commercial banks’ lending rates in Pakistan. Several bank-level factors, namely market size, liquidity, capitalisation, profitability, and competition level, were used in analysing the pass-through mechanism. This study utilised a dynamic heterogeneous panel technique, namely the Pooled Mean Group (PMG) estimation for the sample of 12 private commercial banks, over the time span 2003:Q2 to 2015:Q4. Banks of smaller size, large capital, and higher liquidity were significantly affecting the interest rate pass-through procedure. Thus, to improve monetary policy’s transmission mechanism, Pakistan’s central bank should limit bank capitalisation and draw out excess liquidity from the banking sector.
ISSN:1823-4992
2180-4192
DOI:10.21315/aamjaf2021.17.2.5