Risk premium on lending (lending rate minus treasury bill rate, %)

Countries By Risk premium on lending (lending rate minus treasury bill rate, %)

Key points

Official Definition of Risk premium on lending (lending rate minus treasury bill rate, %)

Risk premium on lending is the interest rate charged by banks on loans to private sector customers minus the "risk free" treasury bill interest rate at which short-term government securities are issued or traded in the market. In some countries this spread may be negative, indicating that the market considers its best corporate clients to be lower risk than the government. The terms and conditions attached to lending rates differ by country, however, limiting their comparability.

Importance

The Risk premium on lending statistic is crucial for a country as it reflects the perceived risk in the economy. A low value of the risk premium on lending suggests that banks are charging a smaller premium on loans to private sector customers compared to the risk-free treasury bill rate. This can indicate a stable economic environment with lower perceived risks for lenders, encouraging investment and economic growth.

Conversely, a high value of the risk premium on lending implies that banks are charging a higher premium on loans, potentially due to higher perceived risks in the economy. This can lead to reduced investment, higher borrowing costs for businesses, and slower economic growth. A high risk premium on lending may also signal economic instability or financial distress within the country.

Top 10 Countries by Risk premium on lending (lending rate minus treasury bill rate, %)

Bottom 10 Countries by Risk premium on lending (lending rate minus treasury bill rate, %)

Regions

Europe

Among the listed countries, Montenegro stands out with the highest risk premium on lending at 5.00%, indicating a significant perceived risk associated with lending to private sector customers in the country. Albania follows closely behind at 5.15%, suggesting a similar level of risk. On the other hand, Hungary has the lowest risk premium at 1.50%, possibly reflecting a more stable economic environment or favorable lending conditions. Italy, Iceland, Moldova, and Romania fall within the range of 2.53% to 2.98%, showcasing moderate to relatively low risk levels. While higher risk premiums can deter foreign investment and hinder economic growth in Montenegro and Albania, Hungary's low premium may attract more investment but could also indicate lower returns for domestic lenders.

Far East: East Asia, SE Asia, Australia

When looking at the risk premium on lending statistic for Papua New Guinea and Thailand, we see that Papua New Guinea has a risk premium of approximately 0.65%, while Thailand has a risk premium of about 2.69%. This indicates that Thailand has a higher perceived risk when it comes to lending compared to Papua New Guinea. In terms of advantages, Papua New Guinea may benefit from lower perceived risk, potentially attracting more investment. However, this could also indicate limited growth opportunities or market competitiveness. Conversely, Thailand's higher risk premium may suggest a more dynamic economy but could deter some investors. This statistic impacts the countries' development by influencing the cost of borrowing, potentially slowing down or speeding up economic activity based on the perceived risk levels.

ASEAN

In Thailand, the risk premium on lending stands at 2.69%. This indicates that banks charge an interest rate 2.69% higher than the risk-free treasury bill rate when lending to private sector customers. Compared to other countries, Thailand's risk premium on lending is relatively low, suggesting a lower perceived risk in lending to the private sector. This can be advantageous for businesses looking to borrow funds as it indicates a favorable borrowing environment. However, a lower risk premium may also indicate less profitability for banks. Overall, a lower risk premium can stimulate economic growth by encouraging investment and entrepreneurship in the country.

Latin America

Among the selected countries, Brazil stands out with a notably high risk premium on lending at 26.28%, indicating a significant perceived risk associated with lending to the private sector compared to investing in treasury bills. In contrast, Mexico and Uruguay have lower risk premiums at 1.02% and 2.76% respectively, implying a lower risk perception for private sector loans in these countries. For Brazil, the high risk premium may suggest concerns about economic stability or borrower creditworthiness, potentially hindering investment and economic growth. Conversely, Mexico and Uruguay may benefit from lower premiums by attracting more investment and fostering economic activity, albeit with the risk of potential credit quality issues. Each country's risk premium reflects its economic stability, investment climate, and credit conditions, impacting their development trajectory and attractiveness to investors.

Middle East

Algeria and Armenia have a risk premium on lending of 5% and 5.8% respectively, indicating similar levels of risk perceived by lenders in these countries. Egypt stands out with a negative spread of -1.75%, suggesting that the market views its top borrowers as less risky than the government. Georgia and Israel have risk premiums of 3.25% and 3.24% respectively, aligning closely in risk assessment. Algeria may benefit from lower perceived risk, encouraging investment, but might face challenges in prudent lending practices. Egypt's negative spread could boost private sector borrowing but may indicate underlying economic instability. Georgia and Israel enjoy stability but may struggle with high borrowing costs despite low risk perception.

Rivals

Anglosphere v BRICS

Brazil has a significantly high risk premium on lending at 26.28%, indicating higher perceived risk by banks when lending to private sector customers compared to investing in treasury bills. South Africa and the United States showcase lower risk premiums at 3.16%, signifying a more favorable risk assessment for lending. This disparity suggests Brazil faces higher financial uncertainty, potentially hindering investment and economic growth. While Brazil may attract higher returns for investors, it also poses greater risks of default. In contrast, South Africa and the US benefit from lower perceived risks, encouraging lending and fostering economic stability.

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