What Drives Bank Lending Spreads and Collateral Requirements in the Kyrgyz Republic

20 Pages Posted: 30 Oct 2020

Date Written: September 2020


Limited access to finance and its high cost have contributed to relatively low levels of private investment and subpar growth in the Kyrgyz Republic. Interest rate spreads have moderated in recent years, but remain high from both a regional and global perspective. At the same time, collateral requirements applied by banks are onerous and also constrain the quantity of credit supplied. This paper identifies a range of factors that could lower spreads in the Kyrgyz Republic: more competition, higher capital, lower credit risk, larger loan size, lower deposit rates and external funding costs, as well as a stronger legal framework. Lower operating costs appear critical to reduce relatively higher spreads for small and medium-sized banks. At the same time, a stronger legal framework and greater transparency on borrowers' creditworthiness would help reduce the high collateral requirements. Reforms in all these areas would support greater financial inclusion in the aftermath of the pandemic, and could thus be a key source of sustainable and inclusive growth in the Kyrgyz Republic.

Keywords: Banking, Loans, Collateral, Credit, Bank credit, WP, tag0, graphic tag0, financial leverage, return on assets, market power

JEL Classification: E43, E44, G21, O54, E50

Suggested Citation

Ruxandra Teodoru, Iulia, What Drives Bank Lending Spreads and Collateral Requirements in the Kyrgyz Republic (September 2020). IMF Working Paper No. 20/186, Available at SSRN: https://ssrn.com/abstract=3721211

Iulia Ruxandra Teodoru (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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