Interest Margin Research Articles

Determinants Of Financial Performance In People's Credit Banks In Bali Province

Purpose: This research aims to determine and analyze the influence of the Loan Deposit Ratio, operating costs, operating income, Non-Performing Loans, Capital Adequacy Ratio and Net Interest Margin on the financial performance of BPRs in Bali Province in 2019-2022.Methodology:This research is quantitative descriptive. This research was conducted at all Rural Banks in Bali Province by analyzing the Determinants of Financial Performance at Rural Banks in Bali Province from November 2023 to January 2024. The scope of the research is to determine the factors that influence Financial Performance at Rural Banks in Bali Province. The population in this research is all Rural Banks in Bali Province in 2019-2022, totaling 135 Rural Banks. Sampling in this research used the purposive sampling method.Findings: The calculations show that the total research sample was 133 Rural Banks in Bali Province, with four years of observation totaling 532 data. The analysis technique used is multiple linear regression analysis. The research results show that the Loan to Deposit Ratio (LDR) positively affects Return on Assets (ROA).Implication:Operating Costs Operating Income (BOPO) hurts Return on Assets (ROA). Non-performing loans (NPL) hurt Return on Assets (ROA). Capital Adequacy Ratio (CAR) positively affects Return on Assets (ROA). Net Interest Margin (NIM) has a negative effect on Return on Assets (ROA).

Efficiency of Indonesia's Regional Development Banks: Evidence from a Non-Parametric Data Envelopment Analysis Method

This study aims to determine the level of performance efficiency of Regional Development Banks in Indonesia. This study uses Data Envelopment Analysis with a non-parametric Banker-Charnes-Cooper model approach to investigate variable return to scale, variable projections, and panel data regression. Input variables include third-party funds, non-interest expenses, interest expenses, and employee costs, while output variables include loans, interest income, and operating income apart from interest with control variables namely net interest margin, operating costs to operating income, loan-to-deposit ratio, and capital adequacy ratio. The findings show that net interest margin, operational costs on operational income, loan-to-deposit ratio, and capital adequacy ratio have a positive and significant effect on the efficiency of Regional Development Banks in Indonesia. However, we found that on average Regional Development Banks in Indonesia were still not efficient in carrying out their operational activities, although some showed quite good performance in the IRS, CRS, and DRS situations during the observation period which had implications for the performance of Regional Development Banks which was not yet optimal.

Impact of Related Lending on Bank Health: Case Study in Indonesia Banking Industry

Related lending is a critical driver of banks’ health, particularly on its profitability and risks profile. As banks engage in related lending activities, they face challenges in managing profitability and assessing various risks, including systemic and credit risks. Nevertheless, the banking literature presents divided views on this: the information view and the looting view. The information view posits that related lending could enhance bank profitability and reduce risks through improved information symmetry between banks and borrowers. Conversely, the looting view theorizes that related lending may deteriorate banks’ performance, reducing profitability and increasing risks, primarily due to the misallocation of resources and the prioritization of personal interests by banks’ insiders. The challenges of related lending have been intensified by the global crisis of the COVID-19 pandemic. Empirical research indicate that banks tend to increase lending to related parties by up to 20% during economic difficulties, with more significant effects in emerging economy such as Indonesia. This trend is reflected in increasing related lending ratio and deteriorating financial indicators of publicly listed Indonesian banks, such as declining profitability ratios of return on assets (ROA) and net interest margin (NIM), as well as increasing risk ratios of higher non-performing loans (NPL) during the pandemic’s onset. Therefore, this study will investigate the impact of related lending on bank health of publicly listed Indonesian banks across two critical periods, before crisis (2013-2019) and during the crisis due to the pandemic (2020-2022). By employing a quantitative approach through regression analysis, this study will be able to assess the relationship between bank profitability and risk ratios with their corresponding variables. The aim is to provide empirical evidence on whether related lending enhance or impair bank performance in terms of profitability and risk, particularly under the economic strains brought by the pandemic.

NPL Effect Moderating LDR, Profitability & CAR on Profitability of Indonesian Private Banks

Banks, as central entities within the economic sphere, are responsible for maintaining stability and integration, one aspect of which is preserving profitability. A common measure for evaluating a bank’s performance in generating profits through operational activities, which plays a crucial role in this context. This study aims to investigate the extent to which the loan-to-deposit ratio (LDR), profitability, and capital adequacy ratio (CAR) impacts the return on assets (ROA), with non-performing loans (NPL) serving as a moderating variable. By employing quantitative methods, this research analyzes processed data from the company’s financial reports. The study period spans from 2015 to 2020, a time during which ROA, NPL, operating expense to operating income (BOPO), net interest margin (NIM), and CAR experienced fluctuations in conventional banks, leading to a research gap. The rationale behind this investigation stems from these observed fluctuations. This study focuses on all commercial banks supervised by the financial services authority (OJK), using a sample of 15 national private banks as the population. Data analysis techniques encompass descriptive analysis, partial least squares (PLS), and hypothesis testing. The findings reveal that CAR and LDR do not have a significant impact on ROA. In contrast, NIM and BOPO exert a considerable influence on ROA. However, no substantial effect was observed in the NPL interaction, which moderates the relationship between LDR, BOPO, NIM, and CAR on ROA.
 Keywords: loan deposit ratio, profitability, capital adequacy ratio, return on assets, non-performing loans

Influence of the COVID-19 Pandemic on the Banking Sector in Northern Europe

This research intends to investigate the influence of the COVID-19 pandemic on the financial performance of the banking sector in Northern Europe spanning from 2010 to 2021. In order to execute an empirical investigation into the elements that influence profitability, we worked with the OLS method (FGLS panel-data model). The results demonstrate the importance of factors that are both macroeconomic and specific in explaining profitability. Specifically, the capital adequacy ratio (CAR) exerts a noteworthy influence on bank profitability. Additionally, the bank's Z-score exhibits a negative correlation with the net interest margin (NIM) and attains statistical significance.

ESG controversies and profitability in the European banking sector

This paper empirically investigates the relationship between Environmental, Social, and Governance (ESG) Controversies and bank profitability. We analyze an unbalanced panel sample of European banks between 2015 and 2022, implementing the GMM-SYS version of the Arellano-Bond estimator for dynamic panels. The study results indicate that banks featuring more ESG controversies perform better in terms of Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin. This sheds light on the potentially opportunistic behavior of credit institutions, which appear to prioritize profitability over ESG Controversies.

A global analysis of bank profitability factors

We analyze the factors that explain banks’ profitability globally and by region. With increasing globalization, knowing the different aspects of bank profitability is essential for countries’ financial stability and economic growth. This study used a sample of 2,091 commercial banks operating in 110 countries grouped into major world regions. With random effect regression models, the global results show that the internal factors that explain the bank´s profitability are listed entities, impaired loans, efficiency, gross interest margin, and capitalization. For its part, the most significant external factors are related to the position of the countries in the ranking by assets, inflation, unemployment, interest rates, and economic growth. From a regional perspective, the results allow us to deduce with high robustness the existence of variable sets that determine bank profitability in each region and that regional models outperform global models in most cases.

Analyze the impact of factors on Vietnam banks’ net interest margin: A panel data approach

This study deals with the impact of Vietnam bank size, loans, credit risk, and liquidity on Vietnam banks’ net interest margin, which are crucial for economic development. High profit margins result in a lower bad debt ratio due to timely loan collection and good liquidity. This study applies a panel data model to evaluate the relationship among bank size, loans, credit risk, liquidity, and marginal profitability, which are increasingly important in commercial bank growth. Data were collected from 2010 to 2022, and test methods were applied to select a good-fit model. Realizing that the factors that have a close correlation and affect the profit margin are 33.6% and 16.07%, 75.2%, 37.51%, 64.30%, and 41.11%, and R2 is 59.04%, respectively, this suggests that financial managers need to develop appropriate strategies and policies to adjust the factors that adversely affect commercial bank profitability.

Effect of banks’ ownership structure on financial performance: evidence from banks in an emerging market

PurposeThis study aims to examine the effect of ownership structure on financial performance of commercial banks in Kenya.Design/methodology/approachThe data were collected from audited financial statements of 39 commercial banks in Kenya for the period 2009–2020.FindingsRegression results found evidence of ownership structure explaining commercial banks’ financial performance. The results found a negative association between state ownership and net interest margin, a negative association between management ownership and net interest margin and a negative association between institutional ownership and return on assets.Practical implicationsBased on the findings, commercial bank management should therefore devise ownership structure policies that are geared toward boosting their financial performance both in the short run and the long run. Second, this study recommends a minority shareholding of the state in commercial banks to deter political interference, protect investors’ wealth from erosion and allow the majority shareholders to adopt a strong corporate governance mechanism for higher financial performance. Banks with a high percentage of state ownership should consider partial privatization to improve corporate governance practices. Third, banks should adopt a managerial ownership policy limiting the proportion of equity stock held by executives to limit their powers in strategic decision-making. Fourth, this study proposes a percentage limit on the equity stock of an institutional investor to eliminate bureaucracy in strategic decision-making and protect investors’ wealth.Originality/valueThe study finding is meant to inform regulation and operation policies in the banking sector and contribute to the literature on ownership structure, especially in the banking sector.

The Influence Of CAR, BOPO, NIM, FDR And DPK On The Profitability Of Commercial Banking Listed On The Indonesian Stock Exchange (BEI)

This research aims to determine the factors that influence the profitability of general banking listed on the Indonesia Stock Exchange (BEI). Capital Adequacy Ratio , Operating Costs Operating Income, Net Interest Margin , Financing to Deposit Ratio , and Third Party Funds as independent variables while profitability as the dependent variable is measured using the ROA measurement indicator. The population in this research are general banking companies registered on the IDX for the 2015-2021 period and the samples used in this research were taken using a purposive sampling method , namely a sampling technique that takes into account certain criteria data that are adapted to the research objectives. The samples in this research are financial reports and annual reports of banking companies starting from 2015-2021 consisting of 33 companies that meet the criteria, and based on the research year period there are 23 1 samples. Methods of data collection using documentation. Data analysis used is descriptive statistical test and hypothesis testing using panel data regression. The results of this study indicate that partially the Capital Adequacy Ratio , Net Interest Margin , Financing to Deposit Ratio , and Third Party Funds do not have a significant effect on profitability as measured by ROA, while Operational Costs and Operational Income have an effect on profitability as measured by ROA, and simultaneously CAR , BOPO, NIM, FDR and DP K have a joint effect on profitability.

Impact of Fintech’s Development on Bank Performance: An Empirical Study from Vietnam

In recent years, fintech has exploded in popularity and importance in the finan- cial industry. Its impacts have spread widely throughout the world, including Vietnam. This study aims to investigate the effect of fintech’s development on bank performance in Vietnam. Based on the unstructured data about fintech on the financial expert web- sites from Vietnam, the word frequency statistic technique of the text mining approach is applied for measuring fintech’s development under the support of Python-based solu- tions. The bank-level data of 15 Vietnamese banks for the period from the first quarter of 2019 to the second quarter of 2021 are collected from the quarterly financial statements in the Vietstock organization. Python programming and text mining techniques are used to compile this dataset by gathering information from popular and relevant websites. The generalized least squares method is used for estimating the panel models. The estimation result shows the significant impact of fintech’s development on bank profitability, but the net interest margin does not associate with the fintech variable. Besides, some interesting findings are revealed: The slow banking transformation to adapt to the rise of fintech and the COVID-19 pandemic increased bank profitability. Furthermore, suggestions for the banks and fintech companies are recommended, and the limitations and directions for further research are also proposed.

Predicting corporate restructuring and financial distress in banks: The case of the Swiss banking industry

AbstractThe global financial crisis of 2007–2009 is widely regarded as the worst since the Great Depression and threatened the global financial system with a total collapse. This article distinguishes itself from the vast literature of bankruptcy, bank failure, and bank exit prediction models by introducing novel categorical parameters inspired by Switzerland's banking landscape. We evaluate data from 274 banks in Switzerland from 2007 to 2017 using generalized linear model logit and multinomial logit regressions and examine the determinants of corporate restructuring and financial distress. We complement our results with a robustness test via a Bayesian inference framework. We find that total assets and net interest margin affect bank exit and mergers and acquisitions, and that banks operating in the Zurich area have a higher likelihood of exiting and becoming takeover targets relative to banks operating in the Geneva area.

The impact of recapitalisations and bank competition on Greek bank net interest margins

PurposeThis study investigates the reasons behind the very high net interest margins in the Greek banking industry compared to the euro-area, focussing on the association between bank competition and recapitalisations.Design/methodology/approachThe author conducts a dynamic panel analysis covering the period from the early 2000s to 2021, that controls for possible endogeneity and treats for heterogeneity. The author also employs local projections impulse response functions that control for structural changes in Greek banking.FindingsThe author finds that low bank competition has contributed to high net interest margins in Greece. Interestingly, the impact of recapitalisations conditional to low bank competition has had a significant further impact on increasing net interest margins, which is a noteworthy case due to several Greek bank recapitalisations in the last ten years. The author’s findings are supported by local projections impulse response functions.Originality/valueTo mitigate distortions in bank competition, the author argues to accelerate steps toward the direction of the banking union and a common bank regulation framework in the euro-area.

Bank Resources, Interest Margin and Long-Term Bank Financing in Franc Zone

The aim of this study is to determine the impact of bank resources and interest margin on the long-term bank lending in the countries of the franc zone over the period 2006-2016. We adopted a static panel data model and the random effects estimator. We used a static panel data model with random effects and the generalized least squares (GLS) estimation method. Our results show that basic bank capitalization and long-term savings positively and significantly impact the supply of long-term bank loans within this area. Only equity negatively and significantly affects the granting of long-term bank loans. We also find that the bank interest margin negatively and significantly influences the granting of long-term bank loans.

Analyzing the Impact of Loan Portfolio Management on the Financial Performance of Publicly Traded Banks in GhanaBottom of Form

The banking sector is pivotal for economic growth and development, primarily through its roles in financial intermediation, providing an efficient payment system, and supporting monetary policy execution. Over the past decade, the performance and profitability of Ghanaian banks have significantly improved. This study aimed to bridge the knowledge gap by examining the factors influencing the performance of commercial banks in Ghana. Key factors analyzed included loan portfolio management, interest expenses, administrative costs, and asset values. A descriptive survey design was utilized, focusing on management employees from commercial banks in Ghana. The sample was selected using both stratified and simple random sampling techniques, and data were collected through self-administered questionnaires. The Statistical Package for the Social Sciences (SPSS) was employed for analyzing primary data, while secondary data were sourced directly from the banks. The study revealed that fluctuations in interest margins had minimal impact on the profitability of both public and private sector banks, indicating that their profitability growth is relatively independent of interest rate changes. However, foreign banks benefited from higher returns due to these interest margin fluctuations.

Impact of Return on Assets, Net Interest Margin, and Loan-to-Deposit Ratio on Capital Adequacy Ratio

Impact of Return on Assets, Net Interest Margin, and Loan-to-Deposit Ratio on Capital Adequacy Ratio

Risk Management and Financial Performance of Commercial Banks in Nigeria.

This study establishes the degree to which risk management has impacted profitability of commercial banks with the aim of contributing to improving the financial performance improvement. This study used secondary data from listed banks extracted from Central Bank of Nigeria list of financial institutions. The study was 2012 to 2021. The sample size of fourteen commercial banks in Nigeria was utilized for the study. Data were analysed using descriptive, Pearson correlation, r and Multiple linear regression (ANOVA) r statistical analysis. Findings were that the Pearson results posted significant relationships among credit risk, operational risk as measures of risks with profitability measures of net interest margin except the liquidity risk. The linear regression result indicated that Credit risk has significant effect on Net interest margin. However, there is no significant effect of liquidity and operation risk on net interest margin of commercial banks in Nigeria. The findings suggest that effective risk management strategy play a key role in commercial banks profitability in Nigeria. Therefore, this study recommended that effective risk management framework to improve financial performance.

Оцінка стратегічного планування через призму аналізу фінансових показників на прикладі АТ «Ощадбанк»

The article is devoted to the study of the impact of strategic planning on the financial indicators of a banking institution on the example of JSC «Oschadbank». In a dynamic market environment and increasing competition in the banking sector, strategic planning is becoming a key tool for ensuring the stable development and improving the efficiency of financial institutions. The aim of the study is to assess the efficiency of strategic planning through the analysis of key financial indicators of the bank, which allows to determine the impact of strategic decisions on the financial stability and competitiveness of the bank. The methodology of the study includes a comprehensive analysis of scientific literature on strategic management, as well as a quantitative assessment of the financial indicators of JSC «Oschadbank». The article examines in detail the theoretical aspects of strategic planning, its tasks and stages, which creates a solid basis for further analysis. Particular attention is paid to the specifics of strategic planning in the banking sector and its adaptation to modern economic challenges. A profound analysis of key financial indicators, including return on assets (ROA), return on equity (ROE), net interest margin (NIM) and cost-to-income ratio (CIR) for the period 2021–2023 was carried out. This made it possible to assess the dynamics of the bank’s financial efficiency in the context of the implementation of its strategic plans. The results of the study showed a significant improvement in the bank’s financial indicators in 2023, including a significant increase in ROA and ROE, as well as a noticeable decrease in CIR, which indicates the efficiency of the implementation of strategic plans, especially in a difficult external environment caused by geopolitical factors and economic instability. On the basis of the analysis, it is concluded that flexible strategic planning is critical to ensure the financial stability and competitiveness of the bank in conditions of economic uncertainty. The study emphasizes the need for constant adaptation of strategic plans to changes in the external environment and internal capabilities of the bank to achieve sustainable financial growth.

Analisis Determinan Kinerja Keuangan Pada Lima Asset Perbankan Syariah Periode Tahun 2019-2022

This research aims to analyze the determinants of financial performance in the five largest assets of Islamic banks during the period of 2019-2022. The research method used is quantitative research with a secondary data approach. The data used is obtained from the financial reports of the top five Islamic banks in Indonesia. The analysis technique employed in this study is panel regression analysis using SPSS 27 for multivariate analysis. The findings of the research indicate that the Earning Asset to Asset Ratio (EATAR) has a significant and very weak impact on Return On Asset (ROA), with an impact of 0.0196%. This suggests that the management of EATAR needs to be considered, even though its impact on ROA is relatively low. Similarly, the Loan to Deposit Ratio (LDR) and Net Interest Margin (NIM) also have a significant and weak influence on ROA, with impacts of 4.12% and 1.18% respectively. Furthermore, EATAR, LDR, and NIM have a significant and very weak effect on the Capital Adequacy Ratio (CAR), with impacts of 0.17%, 0.38%, and 0.47% respectively. However, when considered simultaneously, these three variables do not have a negative and significant influence on both ROA and CAR in the five Islamic banks in Indonesia. The combined effect of the three variables on ROA and CAR is relatively low, at 6.50% and 10% respectively. The predominant result of this research indicates that the Capital Adequacy Ratio (CAR) has a significant and sufficiently strong impact on Return On Asset (ROA), with an impact of 4.36%. This suggests that an adequate level of capital adequacy can contribute positively to the bank's profitability.

Do non-interest income activities matter for banking sector efficiency? A net interest margin perspective

This paper explores the effects of non‐interest income (NII) generating activities on banking sector efficiency in 152 countries from 1996 to 2017. Contrary to previous studies that examine the effects of diversification on banking performance at the micro‐level, this study seeks to provide new insights about the effects of diversification at the aggregate level on bank efficiency. This aspect offers a chance to capture the whole banking sector and provides a broader understanding of the effects of banking sector diversification. Our baseline results reveal that engaging in NII activities is positively associated with banking sector efficiency. Using the dynamic threshold regression method, we do not find a tipping point beyond which the benefits of NII activities have an adverse impact on banking sector efficiency. These results are insensitive to different groups of countries. Our findings generally suggest that banking liberalization contributes to the efficiency of the banking sector. In this sense, the findings of this study support banking sector diversification policies implemented in many countries since the 1980s and 1990s.