Impact of Interest Rate Spread (IRS) on the Performance of All Commercial Banks: Evidence from Pakistan

Abstract

The goal of this study is to explore about the impact of interest rate spread on the performance of banks over the time period from 2006 to 2010 by taking a balanced panel of 33 commercial banks in Pakistan. Performance of banks measured here by taking ROA and ROE ratios as dependent variables. IRS interest rate spread is taken as independent variable to separate its effect on performance four control variables such as bank liquidity, market profit opportunity, and interest income and capital adequacy also incorporated in specific model equations. The results show that IRS has positive and significant impact on both performance measures. Results related to BL, CA and MPO also showed significant relationship with performance. Only II interest income shown negative and insignificant results in relation to both performance measures. So that it has been proved that as IRS interest rate spread increases the performance of all commercial banks also get improved in same proportion.