Determinants Of Net Interest Margin Research Articles

محددات صافي هامش الفائدة للمصارف العاملة في فلسطين

The goal of this research is to identify the factors that influence the net interest margin (NIM) for Palestinian conventional banks. Palestine is a unique country with poor governance, political uncertainty, and regula-tory insufficiency, adding higher information asymmetry to the decision-making process. The sample is comprised of unbalanced panel data from 15 commercial banks for the period 2011–2020. The research used a pooled OLS, a fixed-effect model, a random effect model, a robust pooled OLS, a difference GMM, and a system GMM estimators. Evi-dence collected supports that net interest margin is positively influenced by risk aversion, operating costs, and loan-to-deposit, while being nega-tively related to credit risk. The effect of size is positive but not robust. The results imply that banks and policymakers can increase efficiency by better controlling these factors. Particularly, operating costs can be re-duced by implementing efficient banking technologies and improving management practices that reduce the cost of staff. In future research, other factors should be considered, including the bank's ownership struc-ture and type, whether Islamic or conventional. تهدف هذه الدراسة الى تحديد العوامل المؤثرة في صافي هامش الفائدة للمصارف التجارية العاملة في فلسطين، تعتبر فلسطين حالة فريدة للدراسة بسبب ضعف الحوكمة وعدم اليقين السياسي وعدم كفاية التشريعات مما يؤدي الى زيادة مشكلة عدم تماثل المعلومات في عملية اتخاذ القرارات، تكونت عينة الدراسة من بيانات مدمجة غير متوازنة (Unbalanced panel data) لعدد 15 مصرفا تجاريا مارست عملها خلال الفترة من 2011 وحتى 2020. تم تقدير النموذج باستخدام عدة مقدرات هي: المربعات الصغرى المجمعة، الاثر الثابت، الاثر العشوائي، المربعات الصغرى الراسخة (Robust OLS)، وطرق العزوم العامة (GMM). دعمت النتائج وجود علاقة موجبة بين صافي هامش الفائدة وبين درجة تجنب البنك للمخاطر، التكاليف التشغيلية، ونسبة القروض للودائع، بينما وجدت الدراسة علاقة سالبة مع مخاطر الائتمان، ايضا ظهر اثر الحجم موجبا ولكنه ليس مستقرا في النماذج المختلفة، هذه النتائج تعني امكانية زيادة كفاءة البنوك من قبل اداراتها او صانعي السياسات من خلال التحكم المناسب بالعوامل السابقة، بشكل خاص يمكن تخفيض التكاليف التشغيلية من خلال تبني التكنولوجيا الحديثة وتحسين الممارسات الادارية التي تخفض تكلفة الكادر البشري، يقترح البحث للدراسات المستقبلية ان يتم ادخال عوامل اخرى لاختبارها مثل هيكل الملكية ونوع البنك من حيث كونه تقليديا او اسلاميا.

Determinants of Net Interest Margin in Indonesian Banking Industry: The Moderating Role of Central Bank Interest Rate

This article is to examine the relationship between net interest margin (NIM) and its determinants: risk averse level, liquidity risk, and credit risk. In addition, the article aims to investigate the moderating role of central bank interest rate on the relationship. We observe 17 Indonesian banks, which are listed on Indonesia Stock Exchange in 2017 – 2021 period. We run panel data regression model with 380 firm-year total observations. The Hausman test suggests that we use Random Effect Model (REM) for the parameter estimation. Our study confirms that NIM is determined by credit risk, liquidity risk, and risk averse level. Other than that, we found that central bank interest rate moderates well the relationship of NIM and its determinants by which the dynamic of the relationship of net interest margin and its determinants can be explained. The presence of the central bank interest rate consistently explains the dynamics of the relationship between NIM, risk averse level, liquidity risk, and credit risk. Our model accommodates the positive/negative relationship of NIM and its determinants: credit risk, liquidity risk, and risk averse level. These findings are expected to shed light on the mixed and inconsistent findings of previous research. The ongoing impact of the central bank interest rate consistently elucidates the dynamics between NIM, risk aversion level, liquidity risk, and credit risk. These findings are expected to bring clarity to the mixed and inconclusive results observed in prior research.

Determinants of Net Interest Margin in Commercial Banks in Viet Nam

This riveting study dives into the dynamics of net interest margin (NIM) within Vietnam’s commercial banking sector from 2007-2018, offering fresh perspectives by considering factors like mergers and foreign ownership ratios. Our findings unveil a positive correlation between NIM and variables such as credit risk, risk aversion, loan-to-customer ratio, implicit interest rate, foreign equity ratio, and inflation. Conversely, NIM takes a hit with better management efficiency, during mergers, and in times of economic crises. Interestingly, ownership and GDP growth rate remain neutral, showing no influence on NIM.This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium provided the original work is properly cited.

Determinants of Net Interest Margin for Banks Operating in Palestine

Determinants of Net Interest Margin for Banks Operating in Palestine

Are Islamic and conventional banks decoupled? Empirical evidence from Turkey

PurposeThis study investigates the determinants of net interest margin (NIM) and tests the decoupling hypothesis in Turkey's Islamic and conventional banks.Design/methodology/approachThis study has employed a panel quantile model (PQM) to assess the net interest margin (NIM) and test the decoupling hypothesis in the dual banking system of Turkey.FindingsThe empirical results show that the impact of equity is positive for both Islamic and conventional banks but relatively more robust for Islamic banks. Moreover, it is observed that return on assets has a positive association with NIM in both types of banking systems. Interestingly, the impact increases from lower to higher quantiles, but a higher acceleration rate is observed for Islamic banks. The study also finds that, as bank stability increases, NIM decreases for both groups of banks but more stably for Islamic banks, resulting in lower margins than conventional banks. Thus, the paper confirms the decoupling hypothesis and suggests that, to increase profit margins, Islamic banks need to increase assets and equity.Practical implicationsThe paper confirms the decoupling hypothesis and suggests that to increase profit margin, Islamic banks need to increase assets and equity.Social implicationsSince both equity and assets contribute positively to interest margins, policymakers in the industry need to increase the size of equity and assets to get maximum returns.Originality/valueThis is one of the first studies to investigate NIM's determinants and test the decoupling hypothesis in the Turkish dual banking system using a non-parametric MCMC panel quantile regression (QRM) model.

Determinants of net interest margin in Nepalese commercial banks

This study explored and analyzed the determinants of Net Interest Margin (NIM) of Nepalese commercial banks. The research focuses on three independent variables: Capital Adequacy Ratio (CAR), Credit-Deposit Ratio (CDR), and Non-Performing Loan Ratio (NPLR). Descriptive analysis and regression tests were conducted to analyze the data obtained from a sample of 10 commercial banks with 50 observations. The descriptive statistics reveal the mean and range of the variables, indicating the average and variability of CAR, CDR, NPLR, and NIM in the sample. The regression analysis examines the relationship between the independent variables and NIM. The findings suggest that CDR significantly impacts NIM, indicating that higher utilization of deposits for lending activities contributes to increased interest income and, ultimately, higher NIM. However, CAR and NPLR do not show significant relationships with NIM. The results of this study are consistent with previous research that emphasizes the importance of managing the credit-deposit relationship in optimizing NIM. The findings provide insights for Nepal's policymakers, banking regulators, and commercial banks to enhance profitability and financial stability.

Key factors of the net interest margin of European and US banks in a low interest rate environment

AbstractIn this paper, we contribute to the literature by examining the determinants of net interest margin (NIM) of European and US banks in a zero lower bound situation while controlling for important institutional design factors. We analyse a large sample of annual data on 629 European banks and 526 US during the 2011–2016 period, which also covers periods of zero and negative rates in many of the observed countries. We test three hypotheses and come to three main conclusions. First, NIM is significantly influenced by the different institutional designs of capital‐based (the UK and the US) and bank‐based financial markets (continental Europe). Second, there are differences in NIM caused by bank size. Finally, we show significant differences by bank type: savings banks, real estate and mortgage banks, and cooperative banks report consistently lower NIMs than commercial banks and bank holdings. Contrary to other researchers, we observe a negative relationship between NIM and the yield curve slope.

Determinants of net interest margin: the effect of capital requirements and deposit insurance scheme

ABSTRACTThis paper analyzes the determinants of net interest margin with a focus on the impact of capital regulation and deposit insurance. We extend the Ho and Saunders (1981) family of models to explicitly include both capital requirement and the deposit insurance premium as determinants of net interest margin. The model predicts that the higher the capital requirements and deposit insurance premium, the higher banks’ interest rates will be. We test the theoretical model using panel data for OECD countries between 2000 and 2014. Our results support the positive relationship between both the capital requirement and the deposit insurance premium on interest margins. The most important determinants of the net interest margin are implicit payments, efficiency, average operating costs, the intensity of competition, the deposit insurance premium and capital stringency.

DETERMINANT NET INTEREST MARGIN PADA BANK PERKREDITAN RAKYAT INDONESIA

The purpose of this research is to analyze the determinants of net interest margin (NIM) at Bank Perkreditan Rakyat (BPR) or rural banks in Indonesia 2016. This research uses multiple linear regression model. Data was obtained from Infobank magazine published in July 2016-2017. This research uses 269 BPR or rural banks in Indonesia. Dependent variable in this research is Net Interest Margin (NIM). Independent variables use credit risk proxied with non-performing loan (NPL), liquidity risk proxied by loan to deposit ratio (LDR), capital adequacy proxied with capital adequacy ratio (CAR), the efficiency ratio proxied by BOPO, and bank size proxied by logarithm of total asset (SIZE). The results showed that liquidity risk, and capital adequacy have significant positive affect on net interest margin while the credit risk, efficiency ratio, and bank size affect inversely on net interest margin.

Determinants of Banks’ Net Interest Margin: Evidence from the Euro Area during the Crisis and Post-Crisis Period

This paper analyses the determinants of net interest margin during the period 2008–2014 in the Euro Area. The starting point of the analysis is the premise that this variable is a gauge of financial institutions’ health and stability. In particular, since the outbreak of the global financial crisis, difficulties in achieving sustainable levels of profitability, mainly due to the vulnerable margins from the banks’ traditional activity, have significantly increased the fragility of the European banking system. Besides considering the main bank-level drivers affecting the net interest margin such as market power, capitalization, interest risk and the level of efficiency, we explicitly account for the effects of regulatory and institutional settings. The results show a persistence in the vulnerability of the banks’ sustainable profitability, even though this negative trend has been partly mitigated by the European Central Bank (ECB)’s recent monetary policies. The increase in non-traditional activities as well as the heterogeneous efficiency levels characterizing banking systems across the Euro Area, where operating costs remain generally high, have significantly contributed to the slowdown in bank margins from traditional activity. Finally, the regulatory environment is an important driver of the net interest margin, which remained lower in countries with higher capital requirements and greater supervisory power.

Net Interest Margins of Banks in India

Net interest margin (NIM) is the raison d’être of banking. It is an important measure of efficacy of the banking sector. At the system level, it is indicative of the cost of financial intermediation, health of the banking sector and its pricing power. In recent years, the Indian banking sector has experienced a major metamorphosis, with increasing competition and changing norms of liquidity, income recognition and capital. The end of regulatory forbearance and asset quality review (AQR) unearthed significant non-performing assets. This article traces the influence of various factors on the NIM, using bank-level data for 42 Indian banks over 25 quarters from March 2011 to March 2017. The study employs a dynamic panel generalised method of moments (GMM) framework to trace the impact of three distinct set of factors in setting banks’ NIMs: bank-level factors (like the share of low interest-bearing deposits held, the extent of gross non-performing assets [GNPAs], the capital-to-risk weighted assets ratio [CRAR], size of the loan book, operating costs and lending rates); system-level factors such as the monetary policy rate, credit growth and yields on government securities and macro-variables such as GDP growth and inflation. The results indicate that the main determinants of NIMs are banks’ CRAR levels, the proportion of current account and savings account deposits (CASA) to total deposits, operating costs and size of the loan book. Macro-factors like the growth of the economy and repo rate have a positive influence on the NIM. JEL Classification: C23, E43, G21

Determinants of Net Interest Margins in Emerging Markets: A Generalized Method of Moments Approach

The study focuses on checking the effect of Leverage Risk, Credit Risk, Implicit Interest Payment, Non-Interest Bearing Reserve and Management Efficiency on Net Interest Margin of the banks of Pakistan, India and Bangladesh. This study applies Generalized Method of Moment GMM and panel regression model to explore the impact of risk factors on net interest margin which banks face in providing immediacy. A descriptive analysis of data was performed to get sample characteristics. A set of 33, 37 and 18 banks from Pakistan India and Bangladesh respectively was selected as sample. The data were collected from annual reports of selected banks. The results show that net interest margin has negative and significant effect on the credit risk. Implicit interest payment has positive and significant impact on net interest margin. Leverage risk has significant and negative effect on the net interest margin. Management efficiency has positive and significant effect on the net interest margin. Non-interest bearing reserve also positively and significantly affects the net interest margin. These results recommend the financing policy that banks should consider specific ratios which may increase the net interest margin and also reduce the credit risk.

The determinants of net interest margin during transition

In this paper we examine the banking sector of the Central and Eastern European (CEE) countries during the transition period 1998–2016 in a number of critical dimensions. We place particular importance on the effect that the regulatory framework along with a group of bank-specific, industry-specific and macroeconomic factors have on the net interest margin (NIM) in the banking sectors of the Central and Eastern European countries over the period 1998–2016. In addition to the standard determinants employed in the literature, the present study provides a unique natural experiment to examine the effect of the extensive banking sector reform that took place during the examined period in the CEE countries. We employ both static and dynamic frameworks as well as advanced market structure measures and we argue that net interest margin is determined by bank-specific characteristics such as equity capital, risk and operational inefficiency. Furthermore, it is shown that the regulatory framework as well as the presence of foreign-owned institutions in the CEE countries play an important role in determining NIM. However, as financial systems develop and the reform process ends, both the current and future rates of economic growth are likely to have an enhanced impact on bank margins.

Banking Sector Competition in the Panzar-Rosse Framework and Net Interest Margins: An Empirical Analysis Using the General Method of Moments

This paper provides empirical evidence on the determinants of net interest margins in Central, Eastern, and Southeastern European countries (CESEE) during the period 1999–2009, with a particular focus on the relationship between banking sector competition and net interest margins. Using country-level Panzar-Rosse H-statistic estimates as a measure of competition, and the General Method of Moments, it has been determined that banking sector competition had a negative impact on net interest margins. In order to check for consistency, alternative measures of competition, such as the Lerner index and the Herfindahl-Hirschman index, have also been used. The results appear consistent and suggest that higher market power is associated with higher interest margins. A number of interactions have been used to check for the impact of competition when interacted with other variables. The study also provides evidence on the impact of other bank-specific, macroeconomic, and institutional variables on net interest margins.

Determinants of bank’s interest margin in the aftermath of the crisis: the effect of interest rates and the yield curve slope

This paper analyses the determinants of net interest margin, focusing on the impact of interest rates and the slope of the yield curve, using a broad panel of data from 32 countries over the period 2008–2014, starting at the outbreak of the crisis. The results show that the expansionary monetary policy measures adopted by numerous central banks to combat the crisis have had a negative impact on net interest margins both via the reduction in interest rates and—less powerfully—the flattening of the yield curve. Given that the relationship between net interest income and interest rates/slope of the yield curve is concave, a potential normalisation of monetary policy would have highly beneficial effects on restoring margins.

The Determinants of Bank Interest Margins: A Short-term Funding Perspective

The net interest margins (NIM) is one of the key metrics for Banks, and for those who want to evaluate the performance of a bank’s investments. In this paper, the determinants of net interest margins of China’s financial institutions are investigated, while taking into account the effects of short-term funding and the presence of foreign banks. By distinguishing different shareholding structure and comparing the banks’ net interest margins before and after the banking liberalization, we find that both short-term funding and foreign bank presence have negative impacts on the net interest margins of Chinese domestic banks. The banking sector after the financial liberalization, especially the national wide banks, has better ability to manage the financial stress. The China Construction Banks(CCBs) and Credit Cooperatives suffer higher interest margin decline than State-Owned commercial Banks(SOBs) and Joint Stock Banks(JSBs). The national wide banks need to accelerate the business diversification and increase the intermediary revenue.

Determinants of Bank Net Interest Margin: Case of Tunisia

Net interest margin is a significant indicator of the efficiency of the banking financial intermediation. In general, the level of net interest margin is primarily a consequence of result of the level of development and competitiveness of the financial system of country.Therefore, It is important to determine their determinants. In this article, we analyze the determinants of net interest margin of 18 banks in Tunisia between ( 2000…2013). We found that among the internal factors, size, deposits, TLA, CEA, risk have an significant impact on net interest margin. In external factors, only inflation have a significant impact on net interest margin..

Determinants of Net Interest Margin in the Ethiopian Banking Industry

Determinants of Net Interest Margin (NIM) of commercial banks vary from economy to economy due to variation in country, industry and firm specific factors. This study aims to assess and identify the determinants of NIM in the Ethiopian banking industry. It mainly used unbalanced panel data collected from annual reports commercial banks and the National Bank of Ethiopia for the period 1997 to 2014. Specific macroeconomic data such as Real GDP and Inflation were collected from annual reports of Ministry of Finance and Economic Development. In addition, expert opinions are obtained from officials operating in both private and public banks and used to examine the effects of changes in internal and external factors on the performance of banks. Fixed Effect unbalanced panal data model is used for data analysis. The findings of the study indicated that cost efficiency, implicit interest payment, competition and scale efficiency consistently have positive and significant effects on NIM. On the other hand, liquidity risk and management efficiency has negative and significant effect on NIM. However, macroeconomic variables like inflation and gross domestic product do not seem to have significant effect on NIM. From this finding it is possible to conclude that both bank specific and industry factors are indispensable determinants of commercial banks’ performance in Ethiopia. This, in turn, shows that operational efficiency and business growth are important areas of emphasis to register optimal return. Thus, bank executives, bank advisors and the monetary authority of Ethiopia need to focus on these two pillars performance to ensure optimal NIM in banks.

The determinants of bank net interest margins: A panel evidence from South Asian countries

This paper studies the determinants of net interest margins of banks (NIMs) in four South Asian countries (Bangladesh, India, Nepal and Pakistan) in the period 1997–2012 using panel data of 230 banks. The study is in line of Ho–Saunders (1981) dealership model and its later expansions but extended the model by adding new variable the relative size of the banks and also classifying the determinants of interest margins as bank specific, industry specific and macroeconomic specific variables. We found that liquidity and equity positions, required reserve and operating expenses to total asset ratios affect net interest margins positively while relative size of the banks, market power and economic growth affect inversely.

Determinants of Net Interest Margin of Commercial Banks in Vietnam

This study provides an insight into the determinants of net interest margin (NIM) of commercial banks in Vietnam during the recession period. We employ secondary data collected from published audited consolidated financial reports of Vietnamese commercial banks from 2008, the year marking the outbreak of the global financial crisis, to the end of 2012. Altogether, the data constitute 175 panel-data observations. The regression using the ordinary least squares method yields the result that operating expense, management quality, risk aversion, and inflation rate have a positive effect on NIM, while the banking sector’s market concentration affects NIM negatively. Afterwards, some policy implications are derived from those findings to mitigate and put NIM under control, so that the efficiency of the financial intermediary system can be developed.