Decomposing bank net interest margin: A dynamic stochastic frontier and dominance analysis

Moch. Doddy Ariefianto () and Triasesiarta Nur ()
Additional contact information
Moch. Doddy Ariefianto: Accounting Department, School of Accounting-Master Accounting Bina Nusantara University
Triasesiarta Nur: Accounting Department, School of Accounting-Master Accounting Bina Nusantara University

Economics Bulletin, 2025, vol. 45, issue 3, 1554 - 1565

Abstract: This study aims to disentangle and quantify the time-varying inefficiency component of the Net Interest Margin (NIM), separating it from other contributors such as core factors, control factors, and bank-specific heterogeneity. To achieve this, a two-step empirical design was employed, combining a dynamic stochastic frontier model with dominance analysis. The procedure was replicated across various subsamples—based on ownership structure, bank scale, and the COVID-19 period—as robustness checks. The results show that time-varying inefficiency plays the most significant role in explaining NIM, accounting for approximately 47.1%, while core factors contribute around 31.2%. Only modest variations were found across subsamples. This study offers an innovative methodological approach and concrete findings on one of the most critical banking metrics, with meaningful policy implications.

Keywords: Net Interest Margin; Banks; Dynamic Stochastic Frontier Analysis; Dominance Analysis. (search for similar items in EconPapers)
JEL-codes: C5 G2 (search for similar items in EconPapers)
Date: 2025-09-30
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2025/Volume45/EB-25-V45-I3-P135.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-25-00338

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().