Purpose The purpose of this paper is to examine the determinants of commercial bank lending rates in the Maldives using quarterly data from 2015Q4–2024Q4. The authors analyze whether government debt, savings, recovery rates and inflation exert nonlinear effects on lending behavior while controlling for liquidity, credit risk and market concentration. Design/methodology/approach This study applies the time-series threshold regression framework. Findings Results reveal strong threshold effects. Lending rates decline when debt remains below 68.7% of GDP and when savings, recovery performance and moderate inflation improve financial conditions. Economic significance analysis indicates that savings mobilization has the largest impact: a five-percentage-point increase reduces lending rates by over three percentage points, followed by inflation, debt and liquidity effects. Beyond thresholds, impacts weaken considerably. Practical implications The findings highlight the importance of coordinated fiscal discipline, domestic savings deepening and liquidity management to sustainably lower borrowing costs and strengthen financial intermediation in the Maldives. These findings may also be useful for other Islamic economies with similar financial and institutional environments. Originality/value Existing studies on lending rate determinants largely rely on linear frameworks. This study contributes by using a threshold approach to uncover the nonlinear effects of key structural factors on lending rates. By empirically identifying five structural inefficiencies in the Maldives, the analysis provides new insights on the persistence of high lending rates.
Narayan et al. (2026) studied this question.