How The Financial Sector Affects Economic Growth And Its Interest Rate Spread Is Determined: Theoretical Framework Applicable To Ten Development Countries Of Asean

Abstract

The effects of the financial sector on GDP development and the factors that govern the interest rate spread were analyzed in this article. A more streamlined financial system is represented by a narrow gap between loan and deposit rates. We contend that spreads, as opposed to net interest margins, are more accurate cross country indicators of banking sector efficiency. We provide both theoretical and empirical support for the spread as a potentially useful indicator of productivity. The spread is a metric of financial intermediation and has a strong inverse relationship to other common indicators of this process. Contrary to hypothesis H2, the models that were examined throughout the whole time period found no meaningful correlation between the bank interest rate spread and GDP growth. We also discovered that, like other metrics of FI, the spread is determined by a handful of key factors. Spreads should be reported by international bodies, and greater attention should be paid to this efficiency metric.