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Low interest rates around the world due to adaptive monetary policy regulations for some time a source of concern for the banking sector and depositors of the bank. In this environment, interest rates have raised concerns about nominal deposit interest rates which cannot be lowered below zero without destroying bank customers. Bank loans are becoming less vulnerable to lower interest rates on deposits approaching zero, indicating that the financial channel is weakened when interest rates are close to zero. Demographic pressures associated with longer life expectancy, China's gradual integration into global financial markets and changes in supply and asset requirements are attributed as reasons for low interest rates. Volatility of CPI inflation, interest rates on bank deposits attracting income tax and discontented depositors due to lower rates are cited as reasons for the suffering of bank depositors. This chapter thus discusses the impact of negative rate on economic growth and bank customers besides discussing the future trends of negative interest rates.

Certificates of deposit (CDs) are uninsured deposits that have not been protected by the Japan Deposit Insurance Corporation (DIC) since the beginning of the issuance in May 1979. Thus, CDs should reflect exceedingly well banks’ failure probabilities and the risk perception of market participants among many types of depositors in Japan. Because of this, CDs issued by Japanese banks may enhance the market discipline of banking organizations. This is the first chapter to test the depositor discipline hypothesis using Japanese bank data from the financial year 1998 to the financial year 2003 . The chapter develops reduced-form models that describe how interest rates and the quantity of CDs may be related to banks’ financial measures. Among the Japanese CAMEL ratings, the chapter finds that CD interest rates are sensitive to the capital adequacy ratio (CAR) and that CD quantities are sensitive to ROA. The chapter also insists that CD holders in Japan are sensitive to bank risks and exercise disciplinary power to impose market discipline that compliments regulatory discipline.

This paper examines the sluggish adjustment of deposit interest rate categories with response to policy rate changes in a developing economy.

Symmetric and asymmetric error correction models (ECMs) are employed to test the pass-through effect and adjustment speed of deposit rates when above or below their equilibrium levels.

The findings reveal an incomplete pass-through effect in both the short run and long run while mixed results of symmetric and asymmetric adjustment speed across the different deposit rate categories are observed. Collusive pricing arrangement behavior is supported by deposit rate categories that adjust more rigidly upwards than downwards, while negative customer reaction behavior is supported by deposit rate categories that adjust more rigidly downwards than upwards.

Even though the findings indicate an aspect of increased responsiveness over the period, the sluggish adjustment of deposit rates imply that monetary policy is still ineffective and not uniform across the different deposit rate categories.

To the best of the authors' knowledge, this is the first study to empirically examine both symmetric and asymmetric adjustment behavior of deposit interest rate categories in Kenya. The findings are key to policy makers as they provide insights on how long it takes to adjust different deposit rate categories to monetary policy decisions. In addition, the behavior of deposit rates partly explains why interest rates capping was imposed in Kenya in 2016.

This study aims to test whether the Islamic bank rate of returns are affected by the deposit rates of the interest-based bank in Turkey and whether they need to develop additional tools to manage it if they face an interest risk.

This study tests the causality between the Islamic bank rate of returns and the time deposit interest rates between 2002 and 2010 in Turkey by use of the Granger Causality method based on monthly data. The same analysis is repeated with respect to the terms before and after 2006.

It is concluded that for each term, the time deposit interest rates are the Granger cause of the Islamic bank rate of returns. This causality relation is more visible for the period after 2006.

The results shows that the Islamic banks are sensitive to the interest-based bank interest rates in Turkey. Therefore, this finding suggests that these banks need to remain cautious vis-à-vis the interest rate risk.

A full Edgeworth cycle of deposit rate is divided into two phases: an “overcutting cycle” in which the banks battle for deposits, and a “relenting cycle” in which the banks cease battling and instead choose to restore a temporarily low deposit rate. Such strategies have two testable implications on overall market movements. First, deposit rate decreases are more likely to be initiated when the deposit rate is near the upper bound of a cycle. Second, deposit rate decreases are more sensitive than increases to market interest rate changes. This chapter empirically confirms this pattern and shows strong evidence for the presence of Edgeworth cycles in deposit rates after Hong Kong’s interest rate deregulation.

The purpose of this paper is to investigate the influence of the real interest rates, inflation and risk premium on the time deposit rates of banks in the dual banking system in Malaysia.

The data consists of 1-, 6- and 12-month average time deposit rates of conventional and Islamic banks over the period of January 2000 to June 2017. The cointegration methodologies are used to explore links between the time deposit rates, real rates, inflation and risk premium. The causality tests to test causality linkages between pairs of variables are also applied. The generalised forecast error variance decomposition based on the error correction model is conducted to analyse the impact of variables variation on the deposit rates.

The results show the presence of two cointegration vectors in the deposit rates, real rates, inflation and risk premium, for both conventional and Islamic bank rates. Causality tests reveal that deposit rates are caused by inflation and risk premium in a one-way causality. The results of variance decomposition highlight the importance of inflation and risk premium in explaining the variations in the bank deposit rates. For the conventional bank, inflation shocks play the most important role in explaining the movements of the deposit rates. In Islamic banks, the major determinant’s largest influence is the risk premium. Between the two bank rates, Islamic bank rates receive more influence from the explanatory variables in the long-run compared to conventional bank rates. The real rates have no noticeable effect on the variance of time deposit rates for both banks.

This study presents new evidence on the relationship between time deposit rates and the three explanatory variables, which are the real interest rates, inflation and risk premium, for both conventional and Islamic banks in Malaysia. The dual banking system allows exploring the similarities and differences between conventional and Islamic banks in Malaysia in terms of the linkages between the variables.

The paper investigates the interest rate policy transmission mechanism and the role of market structure of the banking industry in Qatar.

Competitiveness indexes are used to measure the degree of market power in the banking industry in Qatar. The momentum threshold autoregressive model is applied over the monthly period from January 2005 to June 2018 to examine the magnitude of intermediation and adjustment to disequilibria in the deposit market. In addition, to model interest rate volatility and overcome the problem of heteroscedastic errors in the error correction standard models, an asymmetric EC-EGARCH-M model is applied.

The findings suggest incomplete pass-through and asymmetric response to monetary shocks. The asymmetric adjustment mechanism is found to be downward rigid which suggests a high degree of customer sophistication and an elastic supply of deposits. The results of the EC-EGARCH-M show that the impact of monetary policy shocks has a significant positive impact on deposit interest rates and that negative monetary shocks trigger more conditional interest rate volatility in the next period than positive monetary shocks for a short maturity rate.

The paper is the first to highlight the behaviour of the interest rate pass through channel and measures the degree of competitiveness of the banking industry for the case of a small, rich country. In addition, using recent data, the paper applies different econometric methodologies and overcomes the problem of heteroskedastic errors by modelling the interest rate volatility using the EC-EGARCH-M model.

This paper aims to analyze Islamic rates of return, conventional interest rates in the Malaysian deposit markets, and Kuala Lumpur Interbank Offered Rate (KLIBOR) rates in the short-term money market from the view point of co-movement and transmission.

The non-stationary time series models such as cointegration and Granger causality tests are applied to analyze the daily data.

Islamic rates of return and conventional interest rates co-move in the Malaysian deposit market. The Islamic rates of return propel conventional interest rates in the three-, six-, and 12-month maturities. Islamic rates of return and conventional interest rates form a short-term money market with KLIBOR rates.

The author analyzes econometrically the sample period from May 16, 2005 to January 12, 2012. This paper concentrates on the period after the development of Islamic banking in Malaysia.

Islamic and conventional deposit markets are competitive in Malaysia; in particular, the competition in the one-month deposit market is very keen. Islamic rates of return have more impact on the formation of short-term interest rates than conventional interest rates.

This paper makes three contributions to the related literatures. First, it uses daily data in the maturities of one month, three months, six months and 12 months for its analyses. Second, it uses the Granger causality method of Toda and Yamamoto to avoid the issue of the non-stationarity of the data. The results of the Granger causality tests in this paper are different from related literatures. Third, this paper focuses on the relationship of KLIBOR rates and Islamic rates of return, and of KLIBOR rates and conventional interest rates.

We analyze the impact of monetary policy instruments on interbank lending rates and retail bank lending in China using an extended version of the model developed by Porter and Xu (2009). Unlike the central banks of advanced economies, the People’s Bank of China (PBoC) uses changes in the required reserve ratios and open market operations to influence liquidity in money markets and adjusts the regulated deposit and lending rates and loan targets to intervene in the retail deposit and lending market. These interventions prevent the interbank lending rate from signaling monetary policy stance and transmitting the effect of policy to the growth of bank loans. Since the global financial crisis, the PBoC’s monetary policy has gone through a full cycle. The combining effects of using different policy instruments simultaneously within a short period of time were quite effective in bringing the credit and money growth in line with its desired level. Most recently steps have been taken to speed up the interest rate liberalization. Effective July 2013, the PBoC removed the floors of the benchmark lending rates.

Changes in consumers’ awareness of interest rates (deposits and loans) are important for making financial decisions, particularly in the banking industry. However, little is known about the effect of consumer awareness on customer orientation and loyalty. The purpose of this paper is to examine how changes in consumers’ awareness of interest rates in Korea can influence customer loyalty, considering banks’ efforts to improve customer orientation. The authors explicitly rationalize the fact that consumers’ awareness of interest rates can play an important role in moderating the strength of the relationship between customer orientation and loyalty.

The data were collected from participants (n=327) who had made banking transactions based on their real income in Seoul. Participants mainly focused on personal loans and debts, and most people had banked with a specific bank (one of the main Korean banks) for longer than three years. The authors tested the effect of interest rates using two methodologies, namely, a field study using SEM and an experimental design.

The study tested these relationships with survey data and two simulated experiments. The findings indicated that the influence of customer orientation on customer loyalty decreased with the increase in loan interest rate awareness. Moreover, the customer orientation-loyalty link weakened with the increase in awareness of central bank base rates. Conversely, the awareness that loan rates were decreasing strengthened the relationship.

Banks need to know the importance of periodic consultation services with valuable consumers who transact with one or more banks because changes in the consumer awareness of interest rates influence customer loyalty (or switching behavior), particularly when their awareness of loan interest rates increases.

This paper is, to the best of the authors’ knowledge, the first to investigate the consequence of such a change in consumers’ awareness of both deposit and loan interest rates with regard to the relationship between customer orientation and loyalty.