Net Interest Margin Research Articles

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.

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.

Factors affecting net interest margin in the banking sector: Evidence from the Arab region

The net interest margin is an important measure for assessing the operational efficiency of the banking sector, and it also evaluates the performance of the bank’s management, as well as the success of its strategies in generating revenues through its core business (Obeid & Adeinat, 2017). In this paper, we examine the determinants of the net interest margin in the banking sector for selected Arab countries, including the cost-income ratio, the bank’s assets, the provisions, the main interest rate of the monetary policy, the real gross domestic product (GDP) growth rate, and the inflation rate, for a sample of 18 commercial banks in six Arab economies during the period 2015–2020. We use panel data models and the Hausman test to select the appropriate model. The results show that there is a significant positive effect of the bank size and the cost-to-income ratio on the net interest margin, while there is a negative impact of inflation, interest rates on monetary policy tools, and the coronavirus pandemic on the net interest margin. The results did not show a significant relationship between real GDP growth and loan provisions on the one hand, and the operational efficiency of the banking sector on the other hand.

THE INFLUENCE OF CAR, NIM, ROE, LDR AND NPL ON PROFIT GROWTH AT PT. BANK NEGARA INDONESIA Tbk PERIOD 2018-2022

The aim of this research is to determine and analyze the influence of financial ratios on profit growth at PT. Bank Negara Indonesia Tbk. The variables used are financial ratios in the period 2018 to 2022 using secondary data from PT's quarterly report. Bank Negara Indonesia Tbk. SPSS version 25 was used to process the data, with multiple linear regression testing. The independent variables in this research are Capital Adequacy Ratio (CAR), Net Interest Margin (NIM) Return on Equity (ROE), Loan to Deposit Ratio (LDR) and Non-Performing Loans (NPL). The methods used in this scientific writing are Descriptive Analysis, Normality Test, Multicollinearity Test, Heteroscedasticity Test, Autocorrelation Test, Multiple Linear Regression Analysis, F Statistical Test, T Statistical Test and Determination Coefficient Analysis (R2). The research results show that the variables NIM, ROE and NPL partially have no effect on PT's profit growth. Bank Negara Indonesa Tbk, while the CAR and LDR variables partially influence PT's profit growth. Bank Negara Indonesia Tbk. In simultaneous testing, the variables CAR, NIM, ROE, LDR and NPL influence PT's profit growth. Bank Negara Indonesia Tbk. The research results also show that the Adjusted R Square value is 0.614 or 61.4%. This means that the five independent variables, namely CAR, NIM, ROE, LDR and NPL, can explain the relationship to the dependent variable, namely profit growth of 61.4, while the remaining 0.386 or 38.6% is explained by other variables which are not included in the regression model of this research.

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.

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.

Comparative Analysis of the Financial Performance of Regional Development Banks before and after Conversion to Islamic Banks

In Indonesia, the government encourages converting conventional regional development banks into sharia regional development banks. Such banks should become the driving force and the stimulator of a sharia ecosystem in the region, especially to support the development of regional economic potentials and to become a prosperous and peaceful country. This study aims to analyze the financial performance of regional development banks that have become sharia regional development banks to identify their ability to continue to provide economic growth in the region. Considering the results of previous studies, the authors conduct a comparative analysis of the financial performance of regional development banks that have converted to sharia banks using the following variables: return on assets (ROA), return on equity (ROE), loan-to-deposit ratio (LDR) / financing-to-deposit ratio (FDR), net interest margin (NIM) / net operating margin (NOM) and ratio of operating expenses to operating income (BOPO). The analysis aims to determine whether there is a significant difference in the financial performance between conventional and sharia regional development banks. The population in this study is the regional development bank, with a sample of 3 banks that have converted into sharia banks (Bank Aceh Shariah, Bank NTB Shariah, and Bank Riau Kepri Shariah). The study uses secondary bank data from quarterly financial reports on the banks’ websites. The independent sample t-test is used to test the performance of conventional and sharia banks. The study results indicate no significant differences in the financial performance of regional development banks as measured using the financial ratio indicators ROA, ROE, and LDR. However, there are significant differences in measurements using the NIM and BOPO ratio indicators. Although the financial performance of sharia banks is still lower than that of conventional banks, they are showing an upward trend.

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

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.

COMPARATIVE ANALYSIS OF THE FINANCIAL PERFORMANCE OF THE BANKS

In the dynamic world of finance, banks play a pivotal role in economic stability and growth, and analysing their financial performance is crucial for investors, regulators, and policymakers. This study offers a comparative analysis of the financial performance of banks over five years (2018-19 to 2022- 23), underscoring their importance in the financial ecosystem. It evaluates profitability, asset quality, and liquidity, key indicators of a bank's health and efficiency. Profitability is assessed through Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM), while Asset Quality is gauged using Gross and Net Non-Performing Assets (NPA) ratios, and the Credit Deposit Ratio. Liquidity is examined via Liquid Assets to Total Assets and Liquid Assets to Demand Deposits ratios. Employing ratio analysis and a correlation matrix, the research uncovers trends and interrelationships in these financial metrics. The findings reveal an overall enhancement in profitability and asset quality, with notable increases in ROA and ROE and a decline in NPA ratios. Liquidity analysis shows varying trends. This study provides critical insights into the banking sector's financial health, highlighting areas of strength and potential risk, essential for informed decision-making and strategic planning in the financial industry.

Determinants of Bank Stability in Emerging Economies: Empirical Evidence From Vietnam

The thesis explores the main factors affecting the financial stability of commercial banks in Vietnam. It utilizes annual panel data from 27 banks listed on the Vietnamese Stock Exchange, covering the period from 2009 to 2023. Findings reveal that factors such as the equity-to-asset ratio (ETA), bank size (SIZE), return on equity (ROE), and ownership structure (OWN) positively correlate with financial stability, whereas non- performing loans (NPL) negatively affect it. The impact of net interest margin (NIM) and loan-to-deposit ratio (LDR) on stability remains inconclusive. Among macroeconomic factors, the inflation rate (INF) positively influences financial stability, while GDP growth (GDP) does not have a significant effect. Additionally, COVID-19 variables showed no significant association with financial stability.

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.

Impact of Macroeconomic and Bank-Specific Variables on the Profitability of Commercial Banks in Nepal

The study aims to investigate how macroeconomic and bank-specific factors affect Nepalese commercial banks’ profitability. The panel data were collected from 16 Nepalese commercial banks for the fiscal year 2006/07 to 2020/21. The bank’s profitability is measured by net interest margin (NIM) and return on assets (ROA). The bank-specific variables considered in this study are bank size, capitalization, credit risk, deposit-to-total-assets ratio, capital adequacy ratio, and credit-to-deposit ratio. In addition, interest rate, broad money supply, inflation rate, and growth rate of the GDP are used as macroeconomic independent variables. The results of random effect model showed that the most significant bank-specific factor influencing Nepalese commercial banks’ profitability is bank size. Furthermore, the results reveal that the bank-specific factors namely bank size, credit risk, deposit-to-total assets, capital adequacy ratio, and credit-to-deposit ratio significantly increase net interest margin (NIM). Regarding the macroeconomic factors, the findings have explored that interest rates, inflation, economic growth, and the size of the money supply all significantly affect NIM. However when it comes to ROA, the data demonstrate that, aside from interest rate, all macroeconomic factors significantly affect the bank’s profitability as determined by ROA.

The banking industry is tied to IT in the age of Globalisation in India

There is a growing body of research that examines the micro and institutional implications of bank globalisation, looking at things like profitability, expenses, the net interest margin and other performance indicators. The present paper describes the link between globalisation and the banking system in association with the IT sector. Despite the fact that domestic banks are less efficient, the introduction of international banks has boosted the efficiency of the banks. On the other hand, increasing IT expertise shows that depicts the best performance in the banking system. It is further found that the impact of globalisation is preferably dependent on the institutional regime and regulatory framework of India. Private banks are performing better in comparison to public sector banks. Also, the private sector banks are much more techno-friendly than the public sector banks in India. The banking system is being centralised because of the IT sector and the increment in its efficiency has been observed.

Impact of Bank-Specific and Macroeconomic Factors on the Net Interest Margin of Financial Institutions in Sri Lanka

Banks and other deposit-taking financial institutions play a crucial role in any country's economy. The Interest Spread and Net Interest Margin (NIM) in Sri Lankan financial institutions are considerably higher than in other regional countries, indicating high intermediation costs. This paper aims to identify the primary factors contributing to maintaining a higher margin in the sector. Credit risk, liquidity risk, firm size, operational expenses, and earning ability were considered as bank-specific explanatory variables, while interest rate, inflation rate, and economic growth rate were used as macroeconomic explanatory variables. The selected sample comprised seven Licensed Commercial Banks (LCBs), three Licensed Specialized Banks (LSBs), and five Licensed Finance Companies (LFCs) based on their total assets. Data were collected from published secondary sources over a period of 10 years (2009-2019). The data for 2020, 2021, and 2022 were omitted due to the negative impact of COVID-19 and the economic crisis in the country. Multiple regressions with a fixed-effect model were employed to identify significant variables. The results reveal that firm size, credit risk, interest rate, and economic growth are significant across the entire sample. However, firm size emerges as the only industry-specific significant variable in Licensed Finance Companies (LFCs).

THE DETERMINANTS OF MALUS ON REGIONAL DEVELOPMENT BANK IN INDONESIA

Abstract— This study is based on the Indonesian Financial Service Authority since 2015 regulates that banks must have a policy to defer, or to clawback, or combination of both the variable compensation paid to bank’s executive. Since the Indonesian Financial Authority allows banks to choose their compensation scheme, this study is to investigate the factors that influence the choice of the policy. Our study is among few studies that investigate this area because the regulation was enacted in 2017. Data are collected from Regional Development Bank in Indonesia that report their compensation policy since 2017 to 2019. We test financial and nonfinancial factors that may determine the choice of compensation policy. Banks with lower net interest margin tend not to choose malus. The similar conclusion is also given by the variable board of commissioner’s tenure. However, commissioner’s remuneration suggests a positive relationship with the propensity to choose malus other than other type of compensation policies. We find that net interest margin, board of commissioners tenure, and remuneration of executives are related to choice of clawback or malus. Future researchers may focus on the effect of corporate governance related to local governments-owned banks and remuneration provisions.
 Keywords: Clawback; Compensation; Corporate Governance; Holdback; Malus

A Comprehensive Examination of Internal Factors Impact on Islamic Banks Profitability in Pakistan: A Quantitative Analysis

Purpose: This study examines the internal factors that are influencing profitability in Pakistani Islamic banks during the period 2016-2021.
 Design/Methodology/Approach: The analysis utilizes panel data regression models to address potential estimation bias.
 Findings: The study covers key Pakistani Islamic bank financial performance criteria. Internal factors significantly affect ROE and EPS. Gearing and capital ratios enhance ROE/EPS. Due to increased capitalization and leverage, Islamic banks' capital management is vital to profitability. ROE and NIM models are affected by deposits. Deposit funding drives Islamic bank profitability and interest income. In the NIM model, liquidity and NPL ratios affect ROE and EPS significantly. Asset quality and liquidity management effect interest income, not profits. Bank size does affect ROE and EPS models, which is notable in the findings. Islamic financial institutions can prioritize specialization and efficiency over expansion. These numbers indicate Pakistani Islamic banks' finances. Capitalization, leverage control, and deposit mobilization are key to financial success, while risk management ensures stability and profitability during economic downturns.
 Implications/Originality/Value: The detailed investigation shows Pakistan's Islamic banking profitability. Deposit management, capital structure, and asset quality impact profitability. Capitalization and leverage improve earnings, therefore financial management matters. Deposit management is vital to profitability since it affects performance. Recession-sensitive Islamic banks show resiliency. NPA mitigation and liquidity management affect net interest margin, as a key driver. This research offers valuable insights for internal management strategies and regulatory frameworks aimed at enhancing the stability and growth of Islamic banking in the region.

Banking productivity analysis in Indonesia: Empirical evidence using Malmquist Productivity Index based DEA and an Error Correction Model approach

The level of productivity can be used as a benchmark for assessing the performance of a bank so that we can find out how efficient a bank's performance is or how banking productivity is so that we can still get maximum and efficient performance amidst the many choices of customers in choosing bank. This research examines how banking productivity has changed in Indonesia, using banking report data in Indonesia for the 2017-2022 period. Data Envelopment Analysis (DEA) linear programming model, which is used based on the Malmquist Index to measure changes in Total Factor Productivity (TFP). Regression model to describe what variables influence changes in banking productivity in Indonesia. With the Error Correction Model, the Loan-to-Deposit Ratio (LDR) and Return on Equity (ROE) have a significant effect on productivity in the long term. The pandemic crisis does not affect productivity. Meanwhile, in the short term, Net Interest Margin has a significant effect on banking productivity in Indonesia.

Impact of FinTech Growth on Bank Performance in GCC Region

This article investigates the effect of financial technology (FinTech) growth on bank performance in the Gulf Cooperation Council (GCC) region. The application is conducted on a panel dataset containing annual observations of banks from 2012 to 2021 using the generalized method of moments (GMM) method. FinTech growth is set as an explanatory variable on three proxies of bank performance, namely, return on assets (ROA), return on equity (ROE), and net interest margin (NIM). Moreover, several control variables are added to the model, including bank-specific and macroeconomic variables. The results are significant as all the proxies of bank performance are negatively affected by the growth of FinTech startups. Consequently, banks are urged to proactively invest in FinTech startups and engage in partnerships to avoid the risk of disruption. JEL Codes: G21, G23, O31

Faktor-Faktor Yang Mempengaruhi Dividend Payout Ratio Pada Perusahaan Perbankan Di BEI

The dividend policy considers whether a company's earnings will be reinvested or distributed. This policy significantly impacts stakeholders' interests. For investors, the dividend policy is crucial because it affects the level of return on investment. This study aims to explain and analyze whether the bank size, return on assets (ROA), debt-to-equity ratio (DER), loan-to-debt ratio (LDR), and net interest margin (NIM) have a significant impact on the dividend payout ratio (DPR). The sample for this research consists of 10 banking companies listed on the Indonesia Stock Exchange from 2018 to 2022, encompassing 50 observations. The sample was tested through descriptive statistical analysis, model selection tests, and panel data regression analysis. The research findings indicate that Bank Size has a positive and significant impact on the DPR, ROA has a negative and significant impact on the DPR, while DER, LDR, and NIM do not significantly influence DPR.