Prague Economic Papers 2020, 29(6):688-709 | DOI: 10.18267/j.pep.747

Cross-Currency Basis Spread and Its Impact on Corporate Lending Rates in the Czech Banking Sector

Dušan Stanieka
a Prague University of Economics and Business, Faculty of Finance and Accounting, Prague, Czech Republic

For successful monetary policy implementation, it is crucial to know the pricing behaviour of banks and the determinants of banks' lending rates. With the onset of the global financial crisis, markets in unsecured lending ceased to provide a reliable level of market costs, while markets in cross-currency products gained significance. The aim of this research is to gauge the extent to which the EUR-CZK cross-currency basis spread is reflected in the corporate lending rates provided by Czech banks. We discovered that just over 50% of the changes in the basis pass through to the lending rates. The greater part of this pass-through can be identified in EUR lending rates, which are, as a result, higher. In the case of CZK, the negative basis should tend to decrease the lending rates. However, the impact is fairly limited, and we were not able to confirm any significant long-run relationship.

Keywords: Interest rate transmission, cross-currency basis spread, lending rates
JEL classification: E43, G15, G21, G32

Received: July 31, 2019; Revised: January 3, 2020; Accepted: February 13, 2020; Prepublished online: June 24, 2020; Published: November 27, 2020  Show citation

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Staniek, D. (2020). Cross-Currency Basis Spread and Its Impact on Corporate Lending Rates in the Czech Banking Sector. Prague Economic Papers, 29(6), 688-709. doi: 10.18267/j.pep.747
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