What Drives the Distributional Dynamics of Client Interest Rates on Consumer Loans in the Czech Republic?
Abstract
We study determinants of the bank-level distributional dynamics of client interest rates on consumer loans in the Czech Republic in the recent period 2014-2019 when banks started to provide new consumer loans at very low interest rates. We build on the relevant literature in terms of the selected explanatory variables as well as the methodological approach and use regulatory data that enable us to work with the mean, median and the mode of the distribution of client interest rates on consumer loans.
We show that development of the market rate, the NPL ratio as well as the unemployment rate facilitated the observed distributional dynamics. Further, using a variety of variables on market competition/market concentration, our analysis reveals that the role of this determinant is limited at best.
Our results, especially regarding the pass-through from market rates to consumer loan rates, are mostly in line with the international literature but are novel in the Czech context.