Determinants of Commercial Bank Interest Margins and Profitability PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Determinants of Commercial Bank Interest Margins and Profitability PDF full book. Access full book title Determinants of Commercial Bank Interest Margins and Profitability by Asl? Demirgüç-Kunt. Download full books in PDF and EPUB format.
Author: Asl? Demirgüç-Kunt
Publisher: World Bank Publications
ISBN:
Category : Bancos comerciales
Languages : en
Pages : 52
Get Book Here
Book Description
March 1998 Differences in interest margins reflect differences in bank characteristics, macroeconomic conditions, existing financial structure and taxation, regulation, and other institutional factors. Using bank data for 80 countries for 1988-95, Demirgüç-Kunt and Huizinga show that differences in interest margins and bank profitability reflect various determinants: * Bank characteristics. * Macroeconomic conditions. * Explicit and implicit bank taxes. * Regulation of deposit insurance. * General financial structure. * Several underlying legal and institutional indicators. Controlling for differences in bank activity, leverage, and the macroeconomic environment, they find (among other things) that: * Banks in countries with a more competitive banking sector-where banking assets constitute a larger share of GDP-have smaller margins and are less profitable. The bank concentration ratio also affects bank profitability; larger banks tend to have higher margins. * Well-capitalized banks have higher net interest margins and are more profitable. This is consistent with the fact that banks with higher capital ratios have a lower cost of funding because of lower prospective bankruptcy costs. * Differences in a bank's activity mix affect spread and profitability. Banks with relatively high noninterest-earning assets are less profitable. Also, banks that rely largely on deposits for their funding are less profitable, as deposits require more branching and other expenses. Similarly, variations in overhead and other operating costs are reflected in variations in bank interest margins, as banks pass their operating costs (including the corporate tax burden) on to their depositors and lenders. * In developing countries foreign banks have greater margins and profits than domestic banks. In industrial countries, the opposite is true. * Macroeconomic factors also explain variation in interest margins. Inflation is associated with higher realized interest margins and greater profitability. Inflation brings higher costs-more transactions and generally more extensive branch networks-and also more income from bank float. Bank income increases more with inflation than bank costs do. * There is evidence that the corporate tax burden is fully passed on to bank customers in poor and rich countries alike. * Legal and institutional differences matter. Indicators of better contract enforcement, efficiency in the legal system, and lack of corruption are associated with lower realized interest margins and lower profitability. This paper-a product of the Development Research Group-is part of a larger effort in the group to study bank efficiency.
Author: Asl? Demirgüç-Kunt
Publisher: World Bank Publications
ISBN:
Category : Bancos comerciales
Languages : en
Pages : 52
Get Book Here
Book Description
March 1998 Differences in interest margins reflect differences in bank characteristics, macroeconomic conditions, existing financial structure and taxation, regulation, and other institutional factors. Using bank data for 80 countries for 1988-95, Demirgüç-Kunt and Huizinga show that differences in interest margins and bank profitability reflect various determinants: * Bank characteristics. * Macroeconomic conditions. * Explicit and implicit bank taxes. * Regulation of deposit insurance. * General financial structure. * Several underlying legal and institutional indicators. Controlling for differences in bank activity, leverage, and the macroeconomic environment, they find (among other things) that: * Banks in countries with a more competitive banking sector-where banking assets constitute a larger share of GDP-have smaller margins and are less profitable. The bank concentration ratio also affects bank profitability; larger banks tend to have higher margins. * Well-capitalized banks have higher net interest margins and are more profitable. This is consistent with the fact that banks with higher capital ratios have a lower cost of funding because of lower prospective bankruptcy costs. * Differences in a bank's activity mix affect spread and profitability. Banks with relatively high noninterest-earning assets are less profitable. Also, banks that rely largely on deposits for their funding are less profitable, as deposits require more branching and other expenses. Similarly, variations in overhead and other operating costs are reflected in variations in bank interest margins, as banks pass their operating costs (including the corporate tax burden) on to their depositors and lenders. * In developing countries foreign banks have greater margins and profits than domestic banks. In industrial countries, the opposite is true. * Macroeconomic factors also explain variation in interest margins. Inflation is associated with higher realized interest margins and greater profitability. Inflation brings higher costs-more transactions and generally more extensive branch networks-and also more income from bank float. Bank income increases more with inflation than bank costs do. * There is evidence that the corporate tax burden is fully passed on to bank customers in poor and rich countries alike. * Legal and institutional differences matter. Indicators of better contract enforcement, efficiency in the legal system, and lack of corruption are associated with lower realized interest margins and lower profitability. This paper-a product of the Development Research Group-is part of a larger effort in the group to study bank efficiency.
Author: Yanping Kong
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Author: Raja Almarzoqi
Publisher: International Monetary Fund
ISBN: 1475569785
Category : Business & Economics
Languages : en
Pages : 29
Get Book Here
Book Description
In this paper, we use a bank-level panel dataset to investigate the determinants of bank interest margins in the Caucasus and Central Asia (CCA) over the period 1998–2013. We apply the dealership model of Ho and Saunders (1981) and its extensions to assess the extent to which high spreads of banks in the CCA can be related to bank-specific variables, to competition, and to macroeconomic factors. We find that interest spreads are affected by operating cost, credit risk, liquidity risk, bank size, bank diversification, banking sector competition, and macroeconomic policies; but the impact depends on the country.
Author: Koffie Ben Nassar
Publisher: International Monetary Fund
ISBN: 1498317936
Category : Business & Economics
Languages : en
Pages : 26
Get Book Here
Book Description
This paper analyzes the determinants of banks’ net interest margins in Honduras during 1998 to 2013—a period characterized by increasing banks’ net interest margins, foreign bank participation and consolidation. In line with findings in the previous literature, we find that operating costs are the most important drivers of banks’ net interest margins. We also find that competition among banks has led to higher concentration and that funding by parent banks positively impacts foreign banks’ net interest margins. Together, these results suggest that banks, particularly foreign banks, are under pressure to consolidate and reduce operating costs in order to offer competitive interest margins. We conclude that further structural reforms and consolidation may lower banks’ net interest margins.
Author: Oliver Entrop
Publisher:
ISBN:
Category :
Languages : en
Pages : 56
Get Book Here
Book Description
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.
Author: Valentin Stockerl
Publisher: GRIN Verlag
ISBN: 3668906351
Category : Business & Economics
Languages : en
Pages : 23
Get Book Here
Book Description
Seminar paper from the year 2019 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,0, University of Frankfurt (Main), course: Inspecting the European Banking Sector, language: English, abstract: In the novel monetary environment of negative interest policy rates (NIPR) in the Euro area, it is questionable whether the existing findings on determinants of Net Interest Margins (NIM) still hold. This paper analyzes differences in the development of NIM across business models represented by a set of three indicators prior to and after the introduction of NIPR. The strategies are based on a binary categorization between high and low levels of the business indicators using a median, 67-33 and 80-20 percentile cut-off rule. I use a difference in differences (DiD) estimation approach, even though NIPR impact all banks’ NIM. Thus, the obtained estimates do not measure the impact of NIPR itself, but the DiD between strategies. I mostly find positive albeit insignificant effects on banks with low asset held for trading, high deposit and customer loan ratios. In contrast, the DiD coefficient for banks with high deposit-based financing using an 80-20 cut-off is -14 bp, which proves to be a highly significant and economically relevant. These findings support the notion that multiple channels are affecting banks’ NIM.
Author: Natalya Martynova
Publisher: International Monetary Fund
ISBN: 1513565818
Category : Business & Economics
Languages : en
Pages : 44
Get Book Here
Book Description
Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Author:
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 264
Get Book Here
Book Description
Author: Kit Pong Wong
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
This paper explores the determinants of optimal bank interest margins based on a simple firm-theoretical model under multiple sources of uncertainty and risk aversion. The model demonstrates how cost, regulation, credit risk and interest rate risk conditions jointly determine the optimal bank interest margin decision. We find that the bank interest margin is positively related to the bank's market power, to the operating costs, to the degree of credit risk, and to the degree of interest rate risk. An increase in the bank's equity capital has a negative effect on the spread when the bank faces little interest rate risk. The effect of rising inter-bank market rate on the spread is ambiguous and depends on the net position of the bank in the inter-bank market. Our findings provide alternative explanations for the empirical evidence concerning bank spread behavior.
Author: Kofi Adjei-Frimpong
Publisher: LAP Lambert Academic Publishing
ISBN: 9783838352350
Category : Bank profits
Languages : en
Pages : 60
Get Book Here
Book Description
Net interest income is the most important contributor to bank profitability, with the next most important factor being operating expense levels. If we really want to understand how banks generate their profits, and how to maximise these, we need to look at what they do to generate net interest income, at the factors that impact on net interest income, and at what impacts on their operating expenses. The research reported in this book looks at the relationships between net interest income and banks' operating expenses of the five major New Zealand banks over the period 1996 to 2002. For most of the banks, it was found that changes in net interest income led to changes in operating expenses, but for one of the banks, the relationships worked in both directions. Since the pioneering study of Ho and Saunders in 1981 (published in the Journal of Financial and Quantitative Analysis), a number of researchers have looked at the relationships between net interest income and operating expense. This is the first study to look at the New Zealand case, and it thus makes a useful contribution to the international research literature.
