Determinants of Banks' Net Interest Margins in Honduras

Koffie Ben Nassar, Edder Martinez and Anabel Pineda

No 2014/163, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; interest margin; bank; real GDP; Banks’ interest margins; Commercial banks; Panel corrected standard errors (PCSE); bank ownership; funding model; bank default; parent bank; Foreign banks; Credit risk; Loans; Liquidity risk; Europe; Global (search for similar items in EconPapers)
Pages: 26
Date: 2014-09-09
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Citations: View citations in EconPapers (5)

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