Consumer Loan Rate Dispersion and the Role of Competition: Evidence from the Turkish Banking Sector

This paper aims to examine the degree of dispersion in the loan pricing of commercial banks and its association with competitive conditions. To this end, an indexation mechanism processing a novel bank-level dataset is proposed to quantify the lending rate variability in general-purpose, vehicle, and housing loans for the period January 2007-April 2020. In panel convergence tests, we show that there exists heterogeneity in long-term co-movements in banks’ loan pricing, while periods following the tightening in financial conditions display short-term deviations from general tendencies demonstrated by dispersion indices. The methodological setting also entails the construction of competition indicators for total and segment-based credit market developments. The competitive conditions monitored by Herfindahl-Hirschman Indicator (HHI) present that housing and vehicle loan segments have been concentrated in recent years. Quantile regression results further validate that improvements in the competition are associated with a lower level of lending rate dispersion in housing and vehicle segments in a statistically significant manner, whereas this relation is not applicable for general-purpose loans.