Consumer loan rate dispersion and the role of competition: Evidence from Turkish banking industry

Abstract

This paper investigates the degree of dispersion in the loan pricing of commercial banks and its asso- ciation with competitive conditions in the banking industry of a large emerging economy. To quantify the lending rate variability in consumer loans, we utilize a new indexation mechanism exploiting a detailed bank-level dataset for the period January 2007eApril 2020. With panel convergence methods, we show the existence of heterogeneity in long-term co-movements among banks' loan pricing, while periods following the tightening in financial conditions display short-term deviations from general tendencies as demonstrated by dispersion indices. Our empirical design also entails the construction of competition indicators for aggregated and consumer segment-based credit market developments. Quantile regression results validate that the improvements in industry competition are related to the lower level of lending rate dispersion in housing and vehicle segments in a statistically significant manner, whereas an opposite relationship is evident for general-purpose loans. © 2022 The Authors. Published by Elsevier B.V. on behalf of Central Bank of The Republic of Turkey. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/ 4.0/).