Bank Margin Research Articles

Reactive transport modelling applied to the prediction of the dolomitization distribution in carbonate hydrocarbon reservoirs

Reactive transport modelling can be applied to dolomitization to test interpretations of the diagenetic process and to help predict the lateral extent of dolomite reservoirs. Here we report applications to four different cases of dolomitization. The first case simulates the compaction-driven flow model of a drowned palaeohigh and demonstrates that the main limiting constraint is the ratio between the volume of basinal fluids and the rock volume in the palaeohigh. In the second case, hydrothermal dolomitization was simulated in a shallow burial setting above deep-seated rift faults, and shows the importance fault geometry may have in constraining the geometry of the dolomitized body. In the third and fourth cases, two synsedimentary dolomitization processes, thermal convection and mesohaline reflux, were tested in modelling an isolated carbonate platform. Thermal convection produced a dolomitized wedge in the bank margin area, and reflux model simulation shows that some dolomitization can also be produced by mesohaline seawater influx from the top of the platform. In all cases, the simulations suggest that the hydrogeological system is the most important driver for dolomitization, and the final geometry of dolomite bodies is greatly affected by the permeability and the presence of fractures.

Interest Rate Risk Management by Indian Scheduled Commercial Banks: Evidence Using Linear Programming Problem and Panel Data Analysis

This paper intends to explore one of the relatively less highlighted area viz. interest rate risk management by Indian banks with a view to providing an innovative edge to the specific area in the Indian context. Firstly, the paper aims at building empirical relationships between the average yields on assets and liabilities of Indian banks - taking one at a time on the one side - and short-term and long-term interest rates taken one at a time on the other side. Secondly, this paper estimates the impact of (i) slope of the yield curve and (ii) changes in market interest rates on the banks’ net interest margins. Thirdly, the paper attempted to optimise the level of net interest margins of Scheduled Commercial Banks of India with respect to (i) short-term interest rate and (ii) long-term interest rate. The panel data on average yields on assets and liabilities and net interest margins of 64 Scheduled Commercial Banks of India has been undertaken for the study period starting from March 2002 to March 2011. The time series on short and long-term interest rates are also collected for the same period. This paper uses the panel cointegration tests and shows that average yields on assets and liabilities of Indian banks are closely tied to long-term interest rate. The fixed-effects regression analysis highlights that change in long-term interest rate significantly impacts net interest margins of Indian SCBs, implying that Indian banks are exposed to interest rate risk. Finally the study achieves its main objective by solving a linear programming problem with the help of simplex method and determines the maximum level of net interest margin of Indian SCBs, which comes out to be 5.734 per cent over the studied period, if long-term interest rate would have been 11.781 per cent.

Rewards in faith‐based vs conventional banking

PurposeThe purpose of this paper is to analyze the performance of conventional and Islamic paradigms of banking through profitability. Profitability of conventional and Islamic banks is compared through four authentic methods of ratio through reliable statistical data from seven countries. The healthier bank spread in the Islamic way of banking is analyzed and compared with the conventional trend of banking.Design/methodology/approachProfitability of two‐streams of banking are analyzed through bank spread, bank margin to total assets, non‐interest‐based costs to total assets and relationship of bank‐spread and NPBT&Z of conventional and Islamic banks. Data from 87 banks belonged to seven countries were analyzed to obtain results, of which 35 were following Islamic principles‐based products and services. Countries are selected among those which are following binary‐banking systems simultaneously. Statistical data are gathered from audited‐annual reports of these sample banks.FindingsIslamic banks are found to reflect marginal bank spread but bear higher operational (non‐bank margin) costs.Research limitations/implicationsStatistical data are gathered from audited annual accounts of banking companies. Foreign banks are excluded in this analysis due to non‐availability of published accounts for most of such banks at country level. Further NPLs of sample banks were not available in most of sample banks, which could provide actual statistical figures for earning assets of bank.Originality/valueThe paper will be helpful in analyzing the business approach of the global, growing trend of Islamic banking.

Determinants of Bank Interest Margins: Impact of Maturity Transformation

This paper explores the extent to which interest risk exposure is priced in bank margins. Our contribution to the literature is twofold: First, we extend the Ho and Saunders (1981) model to capture interest rate risk and expected returns from maturity transformation. Banks price interest risk according to their individual exposure separately in loan and deposit intermediation fees, but reduce (increase) these charges for loans (deposits) when positive excess holding period returns from long-term exposures are expected. Second, we test the model-derived hypotheses not just for the commonly investigated net interest margin but also for interest income and expense margins separately in a sample encompassing the German universal banking sector between 2000 and 2009. We find that banks price their individual interest rate risk and corresponding expected excess holding period returns via the asset side into the net interest margin. For liabilities, we find interest rate risk exposure only priced by smaller, local banks.

Determinants of bank net interest margins in Fiji, a small island developing state

This article investigates the determinants of Net Interest Margins (NIM) of banks in Fiji, a Small Island Developing State (SIDS) in the South Pacific, over the period 2000–2010. Based mainly on the Ho and Saunders’ (1981) dealership model and extensions thereto, this study uses a number of panel data estimation techniques to control for possible heterogeneity across banks and various assumptions about errors. Consistent with the theoretical model, NIM has a positive association with implicit interest payment, operating cost, market power and credit risk, and a negative association with the quality of management and liquidity risk. However, the association with bank capital and opportunity cost of required reserves do not conform to expectations. Policy implications are discussed.

Market concentration and pricing behaviour of Sri Lankan banks

PurposeThe purpose of this paper is to investigate whether the level of market concentration in Sri Lanka's banking sector is positively associated with bank‐specific interest spreads after controlling for other bank‐specific and exogenous influences.Design/methodology/approachA pooled, time‐series and cross‐section model is utilized which distinguishes between banks’ dominance in loan and deposit market segments. Results are presented for the total sample as well as for a truncated sample of private‐owned banks.FindingsChanges in industry concentration do not affect bank‐level interest margins of Sri Lankan banks. Nevertheless, the dominant Sri Lankan banks seem to extract them and banks’ cost structures are priced in their interest spreads. The less‐capitalized, high risk banks operate with narrow interest margins, possibly due to the relatively higher deposit rates they pay to attract deposits. Although regulatory changes seem to have no effect, the growing capital market exerts negative pricing pressure on Sri Lankan banks.Practical implicationsThe regulators should closely watch banks with larger loan and deposit market shares because they seem to exploit their dominant presence and geographical reach to extract higher spreads. Similarly, state‐owned banks should also draw regulatory attention for they extract higher interest margins, possibly, in lieu of their high operational inefficiency levels.Originality/valueThe authors employ an extended time‐series and cross‐section model which controls for sample heterogeneity using proxies for cost structures, risk profiles, regulatory restrictions and other environmental influences. Moreover, as far as it could be ascertained, this is the first such study on Sri Lanka's banking sector.

Determinants of Bank Interest Margins: Impact of Maturity Transformation

This paper explores the extent to which interest risk exposure is priced in bank margins. Our contribution to the literature is twofold: First, we present an extended model of Ho and Saunders (1981) that explicitly captures interest rate risk and returns from maturity transformation. Banks price interest risk according to their individual exposure separately in loan and deposit rates, but reduce these charges when they expect returns from maturity transformation. Second, using a comprehensive dataset covering the German universal banks between 2000 and 2009, we test the model-implied hypotheses not only for the commonly investigated net interest income, but additionally for interest income and expenses separately. Controlling for earnings from bank-individual maturity transformation strategies, we find all banks to charge additional fees for macroeconomic interest volatility exposure. Microeconomic on-balance interest risk exposure from maturity transformation, however, only affects the smaller savings and cooperative banks, but not private commercial banks. Returns are only priced in income margins.

Determinants of Net Interest Margins of Commercial Banks in Kenya: A Panel Study

This study investigates the determinants of net interest margin of commercial banks in Kenya using secondary data. We apply pooled and fixed effects regression to a panel of 44 Kenyan banks that covers the period 2000-2009. The estimation results show that operating expenses and credit risk has a positive and significant effect on net interest margin of the commercial banks in Kenya. The paper also finds that the higher the inflation, the wider the net interest margin, while growth and market concentration a have negative effect on net interest margin.

Why Have Bank Interest Margins Been so High in Indonesia Since the 1997/1998 Financial Crisis?

We investigate the determinants of net interest margins of Indonesian banks after the 1997/1998 financial crisis. Using data for 93 Indonesian banks over the 2001-2009 period, we estimate an econometric model using a pooled regression as well as static and dynamic panel regressions. Our results confirm that the structure of loan portfolios matters in the determination of interest margins. Operating costs, market power, risk aversion and liquidity risk have positive impacts on interest margins, while credit risk and cost to income ratio are negatively associated with margins. Our results also corroborate the loss leader hypothesis on cross-subsidization between traditional interest activities and non-interest activities. State-owned banks set higher interest margins than other banks, while margins are lower for large banks and for foreign banks.

A comparison of bank margin and profitability

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.

Market structure, welfare, and banking reform in China

This paper examines the effects of market reform on consumers and state commercial banks in China, a large developing country. I jointly estimate a system of differentiated product demand and pricing equations under alternative market structures. Overall, China’s banking reforms have achieved mixed results. Although there is a welfare gain from more consumers participating in the deposit market, the existing consumers suffer welfare losses because of declined service quality. The welfare effects are unevenly distributed, with losses skewed toward inland provinces and certain consumer groups. There is no clear evidence that the pricing of banking services has become more competitive after the reform, and such pricing remains subject to government intervention. Encouragingly, the price-cost margins of some state commercial banks have fallen over time.

Radiocarbon Ages Constraints on the Origin and Shedding of Bank-Top Sediment in the Bahamas during the Holocene

Great quantities of fine-sized aragonite needles are produced in the shallow waters that cover the tops of the Bahama Banks and then exported to the bank margins where they accumulate with shells of pelagic organisms. To better understand these processes, we investigated Holocene-aged sediments in a core from the southwestern margin of Little Bahama Bank. The aragonite content of the sediments, δ18O of planktonic foraminifera shells, and radiocarbon ages of aragonite-rich <63 μm sediments and coexisting planktonic foraminifera shells were determined. Sediment deposition was rapid overall, and a significant increase in deposition rate occurred 3,500–4,000 years ago, shortly after rising sea level flooded the bank top with seawater and caused a dramatic increase in the shallow water area where aragonite production occurred. During the latest Holocene when high deposition rates minimize effects of bioturbation, aragonite-rich <63 μm sediments are 400–600 years older than coexisting foraminifera. This difference indicates the net age of aragonite when it was exported from the bank top. It is consistent with expectations of the “hip-hop’n” model (Morse et al. in Geochimica et Cosmochimica Acta 67: 2819–2826, 2003) whereby aragonite needles on the bank top, formed initially by biologic or other processes, continue to grow for hundreds of years via precipitation of epitaxial carbonate cement from seawater. Earlier in the Holocene, when sea level was lower and the top of Little Bahama Bank was subaerially exposed, the deposition rate and aragonite content of the sediments were less, and the aragonite-rich <63 μm sediments are about 1,000 years younger than coexisting foraminifera. This age difference can be explained by downward mixing of latest-Holocene <63 μm material into older early-Holocene sediments.

Are foreign banks more profitable than domestic banks? Home- and host-country effects of banking market structure, governance, and supervision

Using both bank- and country-level data on banking sectors from 70 countries over the period 1992–2006, this paper empirically investigates the joint home- and host-country effects of banking market structure, macroeconomic condition, governance, and changes in bank supervision on foreign bank margins. We find that foreign banks are more profitable than domestic banks when they operate in a host country whose banking sector is less competitive and when the parent bank in the home country is highly profitable. Moreover, when foreign banks operate in a host country with lower growth rates of GDP, higher interest and inflation rates, and more stringent regulatory compliance with Basel risk weights, their margins increase. Specifically, changes in bank supervision of a parent bank’s ownership restrictiveness in the home country significantly increases foreign bank margins, while supervisory changes in regulatory compliance with Basel risk weights in the host country enhances foreign bank margins.

The effects of bank regulations, competition, and financial reforms on banks' performance

In this paper, we examine the influence of bank regulation, concentration, and financial and institutional development on commercial bank margins and profitability across a broad selection of Middle East and North Africa (MENA) countries. The empirical results suggest that bank-specific characteristics, in particular bank capitalization and credit risk, have a positive and significant impact on banks' net interest margin, cost efficiency, and profitability. Also we find that macroeconomic and financial development indicators have no significant impact on net interest margins, except for inflation. Regulatory and institutional variables seem to have an impact on bank performance.

Influence of bed heterogeneity and habitat type on macroinvertebrate uptake in peri-urban streams

The role of geomorphic structure, referred to as physical heterogeneity, and its influence upon the colonization of habitat by macroinvertebrates was analysed in the peri-urban, Twin Streams Catchment, in West Auckland, New Zealand. Using a cross-scalar approach, 4 riffle-run assemblages were analysed in each of 2 River Styles (a confined, low sinuosity, gravel bed river and a partly confined, low sinuosity, bedrock, cobble, and gravel bed river). Each of these 8 locations comprised 2 distinct sampling areas; the upstream zone had a more heterogeneous river bed with a high diversity of physical features and flow, whilst the downstream area had a more homogeneous structure. Microhabitat features sampled at each site included streambed material, bank margins, fine grained organic debris, wood, and boulders. Habitat mosaics and their associated macroinvertebrate relationships followed a semi-predictable but interrupted pattern, supporting the view that river systems are a patchy discontinuum. Homogeneous zones were more frequently characterised by higher proportions of Trichoptera than heterogeneous zones, whilst heterogeneous zones were frequently characterised by Plecoptera and Ephemeroptera. Diversity was maximised when the species pools from heterogeneous and homogeneous sites were combined for any given site. Functional habitats influenced macroinvertebrate assemblages in non-linear and complex ways. Wood and organic debris habitats were associated with high diversity, abundance, and sensitive species whereas streambed habitat was usually associated with low diversity. A diverse range of physical zones that approximates the ‘natural range of behaviour’ for the given type of stream was considered to provide a more effective platform for rehabilitation planning than emphasising heterogeneity of physical structure in its own right.

Bank margin determination: a comparison between Islamic and conventional banks in Indonesia

PurposeThe purpose of this paper is to examine the relationship between Islamic bank margin (BM) and its determinants. It also compares the BM behavior of Islamic and conventional banks in the Indonesian dual banking system.Design/methodology/approachThe paper employs a time series approach under the dealership framework of Ho and Saunders. The autoregressive distributed lag model is used to inspect cointegration between BM and its determinants for the period of January 1996 to February 2006 of five sample banks (two Islamic banks and three conventional banks).FindingsThe result confirms that there exists a long‐running relationship between the Islamic BM and its determinants. In particular, as interest rate volatility increases, Islamic BM responds negatively while that of conventional banks responds positively. The findings differ from most of the other studies as they found a positive relationship between BM and interest rate volatility. This paper also shows that the margin behavior changes as the basis of bank operations changes from conventional to Islamic principles.Research limitations/implicationsThe paper uses a relatively small sample of three (out of 150) conventional banks as a comparison to two sample Islamic banks. However, as they come from the same peer with the Islamic banks, it is believed that the finding is valid. Islamic banks in Indonesia are not remote from the interest rate volatility in their presence under a dual banking system. It is the displaced commercial risk that threatens Islamic banking profitability in a changing market interest rate situation.Practical implicationsUnder a dual banking system, the stability of interest rates and the financial system is of great importance for the policy maker in developing the Islamic banking industry in Indonesia. As long as the BM is still a major source of income to the Islamic banks, it is necessary for Islamic banks to have prudent risk management to mitigate the negative effect of displaced commercial risk and maintain its profitability. Implementation of profit equalization reserves concept is a possible measure for Islamic banks to shield their operation.Originality/valueThis paper is believed to be the first study on Islamic BM behavior in Indonesia. It is expected to provide useful information for policy makers and Islamic bank management to develop a sound and profitable Islamic banking industry in Indonesia.

Viscous flow lobes in central Taylor Valley, Antarctica: Origin as remnant buried glacial ice

Viscous flow lobes are common throughout the McMurdo Dry Valleys (MDV) of Antarctica. These features have been described as rock glaciers, gelifluction lobes, solifluction lobes, talus mobilized by pore ice and/or segregation ice, and debris-covered glaciers. We investigate the origin, modification, and flow of a 2-km-long lobe (East Stocking Lobe or ESL) along the north wall of central Taylor Valley using field mapping techniques, shallow seismic surveys, time-dependent displacement surveys, and isotopic analyses of buried-ice samples. On the basis of these integrated analyses, we show that the ESL is cored with remnant glacier ice, most probably derived from an advance of nearby Stocking Glacier ∼ 130 kyr BP. Seismic data, coupled with results from ice-flow modeling assuming plastic flow of clean ice, suggest that the buried core of glacier ice is ∼ 14- to 30-m thick. Near its terminus, the ESL flows at a rate of ∼ 2.4 to 6.7 mm a − 1 . The loose drift that caps the buried ice (typically < 1 m thick) is composed of moderately stratified sand- and gravel-sized clasts; it is dry (1–3% soil gravimetric water content; GWC), except near ephemeral stream channels and the margins of melting snow banks (6–25% GWC). Stable isotopic analyses of samples from the upper 30 cm of the ice lie on a slope of ∼ 5.8 (when plotted on a δD vs. δ 18O graph), well below the local meteoric water line of 7.75, suggesting modification by freeze/thaw processes and evaporation/sublimation. Measured air and soil temperatures show that intermittent melting is most likely possible during summer months where buried ice is ≤ 35 cm below the ground surface. Morphological comparisons with ice-cored deposits in upland regions of the Dry Valleys, e.g., Mullins and Beacon Valleys (30 km inland and ∼ 500 m higher in elevation), and near the coast (40 km distant and ∼ 500 m lower) reveal marked contrasts in the style of near-surface ice degradation and cryoturbation. From these morphological comparisons, we infer that buried-ice deposits in the stable upland zone have not experienced the relatively warm climate conditions now found at the ESL and at lower elevations in the Dry Valleys region (e.g. sustained summertime temperatures of ≥−4 °C) for the last several million years.

The Effects of Bank Regulations, Competition, and Financial Reforms on Banks’ Performance

In this paper, we examine the influence of bank regulation, concentration, and financial and institutional development on commercial bank margins and profitability across a broad selection of Middle East and North Africa (MENA) countries. We cover the 1989-2005 period and control for a wide array of macroeconomic, financial, and bank characteristics. The empirical results suggest that bank-specific characteristics, in particular bank capitalization and credit risk, have a positive and significant impact on banks’ net interest margin, cost efficiency, and profitability. As for the impact macroeconomic and financial development indicators bear on bank performance, we conclude that these variables have no significant impact on net interest margins, except for inflation. However, inflation shocks seem to be passed mainly through the deposit rates and this type of transmission means that banks bear the entire negative cost of inflation. Also, the results suggest that banks lower their operating costs in a well-developed banking sector environment (as confirmed by the negative and statistically significant coefficient of the bank development variable in the cost efficient regression models). Furthermore, the stock market development variable is always positive and significant in all specifications, suggesting that banks operating in a well-developed stock market environment tend to have greater profit opportunities. Regulatory and institutional variables seem to have an impact on bank performance as the results suggest that corruption increases the cost-efficiency and net-interest margins while an improvement of the law and order variable decreases the cost of efficiency without affecting performance.

Rippled scour depressions on continental shelf bank slopes off Nordland and Troms, Northern Norway

Multibeam bathymetry acquired under the MAREANO programme from the continental shelf off Nordland and Troms, northern Norway, show bedforms that we have interpreted as rippled scour depressions. They occur in three areas offshore on bank slopes facing southeast, more than 15 km from land. They are generally found where the slope gradient is low, in water depths of 70–160 m. Individual depressions are up to 3 km long, 1 m deep and up to 300 m wide. They occur in areas where sediments evolve quickly from glacial deposits on the banks to post-glacial muddy sediments on the glacial troughs. Multibeam backscatter and underwater video data show that depression floors are covered by rippled, gravelly, shelly sand. Ripple crests are parallel or slightly oblique to the depression axis orientation. Sand without bedforms is observed between the depressions. TOPAS seismic lines show that the uppermost seismic unit consists of the sand between the depressions. The base of this unit may be the last transgressive/tidal/wave ravinement surface. Physical oceanographic modelling indicates that maximum current velocities are up to 0.6 m/s in the rippled scour depression areas. Stronger currents appear to inhibit the building of these features. Tidal currents play an important role as they trend parallel to the southeast banks slopes and are likely responsible of the gravelly ripples formation inside the depressions as well as the persistence of these depressions which are not covered by finer sediments. On Malangsgrunnen bank, some of the rippled scour depressions are in the extension of NW–SE furrows located on the bank. Simulated bottom currents indicate currents mainly perpendicular to these furrows, as for the rippled scour depressions on the bank slopes. Nevertheless, these features could also highlight currents coming from the northwest which reach the bank margin and continue down to the areas of the rippled scour depressions. These currents could be responsible for the formation of some of the bedforms, together with tidal currents.

Why are Net-Interest Margins Across Countries so Different?

In this study, we use panel data from 121 countries over the period 1999-2012 to provide new evidence regarding why bank margins differ across countries. More specifically, we test whether, and, if so, by how much, country-level governance variables and bank-specific factors explain the net-interest margins over time. We find that both bank-specific factors and country-level governance variables are important determinants of the interest margins. We also investigate whether these determinants vary by the level of economic development by analyzing developed and developing countries separately. We find significant differences in the determinants of margins between developed and developing countries.