A comparison of bank margin and profitability

Abstract

Using various profitability ratios, this paper examines bank profitability in Fiji and compares it with the banks in New Zealand, Australia and USA. The findings suggest that on average, banks in Fiji have a significant higher net interest margin (NIM) relative to their overseas counterparts. From 2005 through 2010, NIMs in Fiji ranged from 5% to 7%, compared with 1% to 2% in New Zealand, Australia and USA. When you add the increasing fees and charges to this high margin, bank profitability in Fiji becomes a serious concern and the question is raised about their crucial role in expanding economic opportunities in Fiji. Further evidence suggest that the international banks in Fiji have been borrowing cheap funds from the Fiji National Provident Fund for many years and lending them back to Fiji’s economy, reaping significant profits for their shareholders that are eventually repatriated overseas.