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The Determinants of Net Interest Margins of Commercial Banks: Panel Evidence from China, India and Japan

Md. Shahidul Islam and Shin-Ichi Nishiyama
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Md. Shahidul Islam: Department of Banking and Insurance, University of Dhaka

No 2014, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: The study examines the determinants of net interest margins of commercial banks of China, India and Japan. Using the cross-country panel data of 418 commercial banks during the period of 2011 to 2017 (practically the post global financial crisis period); we classified the determinants as bank-specific, industry specific and macroeconomic-specific variables. In line of the ‘dealership model of margin determination’ of Ho and Saunders (1981) and its later extensions, we viewed net interest margins or spread as a function of liquidity, profitability, credit risk, risk aversion, size, business growth, regulatory response and off- balance sheet income in the bank-specific cluster whereas the industry concentration in industry specific cluster and call money rate, inflation and GDP growth rate in macroeconomic clusters. We found evidence that liquidity, profitability, risk aversion, required reserve ratio, yield spread and GDP affect interest margins positively but size and rate of inflation negatively. Our empirical findings support the traditional structure-conduct-performance (SCP) hypothesis of Bain (1956) for the banking markets of China, India and Japan for the post global financial crisis (GFC) era.

Pages: 54 pages
Date: 2020-08
New Economics Papers: this item is included in nep-ban and nep-mac
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