The Mediating Role of NIM on Market Structure and Bank Performance: Empirical Confirmation from Listed Nepalese Commercial Banks

Prem Bahadur Budhathoki and Chandra Kumar Rai
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Prem Bahadur Budhathoki: Tribhuvan University, Finance Department, Mahendra Multiple Campus, Dharan, Nepal
Chandra Kumar Rai: Tribhuvan University, Accountancy Department, Mahendra Multiple Campus, Dharan, Nepal

International Journal of Finance & Banking Studies, 2020, vol. 9, issue 3, 28-38

Abstract: This paper examined the mediating role of net interest margin (NIM) on the nexus between market structure and banks’ profitability. Two ordinary least-squares models with a path analysis model were applied to analyze the data.The first regression model measured the indirect effects of market structure, total assets, geographic expansion, and specialization on ROA through NIM and revealed that the higher market share of loans positively effects on bank’s performance and statistically insignificant. Similarly, the geographic expansion was observed to hurt the bank’s ROA, but statistically insignificant. On the other hand, the indirect effect of total asset size and specialization was negative, but the first one was statistically significant, and the second was statistically insignificant. The result of the second regression model measured thedirect effect of antecedent variables on the ROA and revealed that the market structure, geographic expansion, and specialization were negatively related to performance measure ROA. However, the direct effect of total assets size was positively associatedwith ROA and statistically significant. The results of the two regression models based on total effects revealed that a higher bank size appeared favorable to Nepalese CBs and was found to have positive effects on ROA but the geographic expansion was an inverse effect on ROA. The results of the study might be helpful to Nepalese bankers, regularity authorities, and other concerned stakeholders to take an effective decision about the direct, indirect, and total effects of chosen antecedent variables on consequent variables through the mediating role of NIM.

Keywords: Market structure; Total asset size; Geographic expansion; Specialization; Path model (search for similar items in EconPapers)
Date: 2020
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