Pricing of retail deposits in Croatia: including the premium for country default

Vidakovic, Neven (2014): Pricing of retail deposits in Croatia: including the premium for country default.

Abstract

The pricing of interest rates on retail deposits in Croatia does not follow standard term structure or quantity premium for pricing deposits. Banks often pay no premium on time or on quantity of deposits. On one hand this is not surprising since the banking sector has been very liquid for last several years and the banks see deposits as a cost, but what is interesting is that the banks do not price in forward looking expectation regarding the state of economy or country rating. This paper uses a simple Black – Sholes model and incorporates forward looking expectations regarding the state of the economy into the existing deposit pricing structure for largest banks in Croatia.

• Item Type: MPRA Paper
• Language: English
• Keywords: deposit interest rate, probability of default, banks
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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