Banking Sector Competition in the Panzar-Rosse Framework and Net Interest Margins: An Empirical Analysis Using the General Method of Moments

Arben Mustafa () and Valentin Toci ()
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Arben Mustafa: University “Kadri Zeka”, Faculty of Economics, Gjilan, Republic of Kosovo
Valentin Toci: University of Prishtina “Hasan Prishtina”, Faculty of Economics, Prishtina, Republic of Kosovo

Croatian Economic Survey, 2018, vol. 20, issue 1, 5-36

Abstract: This paper provides empirical evidence on the determinants of net interest margins in Central, Eastern, and Southeastern European countries (CESEE) during the period 1999–2009, with a particular focus on the relationship between banking sector competition and net interest margins. Using country-level Panzar-Rosse H-statistic estimates as a measure of competition, and the General Method of Moments, it has been determined that banking sector competition had a negative impact on net interest margins. In order to check for consistency, alternative measures of competition, such as the Lerner index and the Herfindahl-Hirschman index, have also been used. The results appear consistent and suggest that higher market power is associated with higher interest margins. A number of interactions have been used to check for the impact of competition when interacted with other variables. The study also provides evidence on the impact of other bank-specific, macroeconomic, and institutional variables on net interest margins.

Keywords: bank competition; net interest margins; Panzar-Rosse H-statistic; General Method of Moments (search for similar items in EconPapers)
JEL-codes: D4 E43 G21 P2 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:iez:survey:ces-v20_1-2018_mustafa-toci

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