A Comprehensive Analysis on Interest Rate Spread in North Cyprus: Panel Method, 2002-2012

This study aims to measure and analyze determinants of interest rate spread in North Cyprus. In this respect, firstly spread is calculated. Then, analysis made to determine whether IRS is at high or reasonable rates for different types of spreads. In literature review, many studies select various independent variables for empirical analysis to understand the determinants of IRS. In the light of this information North Cyprus case studied. In this respect, 18 banks selected from the banking system of North Cyprus and categorized into 3 groups; privately owned local banks, publicly owned banks and privately owned foreign branch banks. With the help of EViews 8 software program, descriptive statistics analysis performed and general statistics of three separate bank group and all banks obtained successfully. In the analysis Panel Data Method has been employed. Sample period started from 2002 and ended 2012. Firstly, unit root tests performed and founded that all dependent and independent variables are stationary. Then, Ordinary Least Squares Method used to get final outcomes of this study. For different spread models, three different equation models were created. Hausman Test showed that in all of the models Random Effect Model is most appropriate effect model. Results of the different panel estimations give the detailed information about robust estimations of different spread models. In section 4.3, outcomes of this study were compared with other study results. In addition to this, critical points of this study underlined and make overall analysis on IRS. It was concluded that main determinants of the IRS in North Cyprus are Credit Risk, Liquidity Risk and Non-Performing Loans. Keywords: IRS, North Cyprus, Credit Risk, Non-Performing Loans, Liquidity Risk