What affects the interest rate on deposit from households?

Abstract

The contribution aim to identify the factors influencing the level of the interest rate in the conditions of the Slovak banking sector. The analysis itself is carried out using a correlation and regression analysis based on quarterly data from the database of National Bank of Slovakia for the period from 1st quarter 2006 to the 4th quarter of 2017. The research has been motivated by the three research questions about the impact of the selected market and intra-bank variables (Does the growth of market concentration lead to a decrease in deposits interest rates? Does the interest rate on the interbank market have a positive impact on deposits interest rates? Does the growth of liquidity lead to a decrease in deposits interest rates?). Based on the results of regression model we have found out, that the increasing concentration, declining interbank interest rate, disinflation, increasing bank capitalisation and declining bank liquidity have a significant impact on the decline in interest rates on deposit products under the conditions of the Slovak banking sector. This support the Structure-conductperformance hypothesis which states that higher market concertation leads to less favourable pricing to customers. We have also found out, that highly capitalised banking sector has a lower pass-through for deposits, which means that the pricing behaviour of this banking sector is least tied to market development. So when the market rate decrease, the deposit rate of highly capitalised banking sector must also decrease and this decrease must be higher than the decrease in market rate.