The liberalization of the Philippine banking sector: its effect on the interest rate spread and profitability of banks (1998-2008)
Date
2009-01
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Abstract
The liberalization of the Philippine banking sector was intended to improve financial intermediation by promoting competition and enhancing the efficiency of the domestic banking sector. We examine how the entry of foreign banks affects the interest rate spreads and profitability of domestic banks and we find support that it does not systematically reduce both. Interest rate spreads of domestic banks remain on the same level and their profitability continues to grow. Nevertheless, foreign competition, at some extent, drives domestic banks to improve their operating performance. We construe that the presumed effect of the liberalization was felt but not fully realized.
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Keywords
Philippine banking industry, Banking industry, Interest, Fiscal policy, Interest rates, Bank profitability