The factors that influence interest rate spread of micro finance institution in Malaysia / Najwa Mohd Zakaria

The paper empirically investigates the determinants of interest rate spread in Malaysia banking sector based on panel data analysis and also to determine the most significant factors affecting interest rate spread. The findings show that bank-specific factors play a significant role in the determination of interest rate spreads. These include loan loss provision, return on assets, operating costs and return on equity, this entire variable has positively influence interest rate spreads. On the other hand, return on asset ratio and bank size has a negative effect on the spreads. On average, big banks have higher spreads compared to small banks. This study used a qualitative research which involved collecting data from annual report of all Micro Finance Institutions in Malaysia from year 2008 until 2017. The method used to analyses the data of this research is Ordinary Least Square (OLS) regression because this research only conducted in Malaysia. The collected data were analysed by using Stata version 10 in order to get the end result.The findings indicate that the Panel Pooled (OLS) model as a preferable model after conducting data analysis comparison between Panel Pooled (OLS) and Panel Random Effect. The outcomes of this research study summarized that two independent variables which are loan loss provision and bank size have a significant relationship with interest rate spread. The other three independent variables namely return on asset, return on equity and operating cost show insignificant relationship towards interest rate spread. As a result, the research objective of this study had been achieved.