International Monetary Fund. Western Hemisphere Dept.
INTERNATIONAL MONETARY FUND
This Selected Issues paper analyses Paraguay's effective interest spreads using various methodologies. Operational costs, rising profits, and the need to cover credit and liquidity risks are the main factors behind Paraguay's effective spreads. Improving data quality and mechanisms for sharing credit information could contribute to reduced spreads. The paper provides some background and stylized facts on the Paraguayan banking sector, and presents the methodology and results of interest rate decompositions, financial statement analysis, and interest rate regressions. It also analyzes the effects of financial dollarization and whether macro-prudential tools could deepen the de-dollarization process observed during the last decade.