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The Effects of Firm and Bank Balance Sheet Conditions to Net Interest Margins: Evidence from Loan-level Firm Survey Data

Tomoko AIZAWA-Tanemura () and Shin-Ichi Nishiyama
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Tomoko AIZAWA-Tanemura: College of Commerce,Nihon University

No 2215, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: This paper uses the interpretation of the monetary transmission channel model in Japan under low interest rates to clarify the factors that determine the net interest margin (NIM). An analysis using Loan-level data from the Tohoku region from 2012 to 2015 shows that the Capital-to-Asset Ratio of a firm is an important factor in determining NIM. Even if we consider that firms and banks have suffered Nuclear Damage, Bad reputation Damage, and Supplier Damage due to the Great East Japan Earthquake as control variables, the channel through the agency cost of the borrower is effective. Even if we put the policy response of Rents and leases Subsidy, Interest or guarantee fee Subsidy, Interest reductions, and Group Subsidy into the estimation formula as a control variable, the channel through the agency cost of the borrower is effective. On the other hand, the existence of a channel through banks' agency costs, funding costs of capital and borrowing, and liquidity costs cannot be shown to be stable. In other words, financial institutions can earn high NIMs when they lend to firms that have relatively small net worth and depend on banks for funding. Financial institutions in Japan's Tohoku region that wish to profit from lending need to face the agency problem between borrower firms and lender banks.

Keywords: Net Interest Margin; Capital-to-Asset Ratio; Balance Sheet Channel; Loan-level Data (search for similar items in EconPapers)
JEL-codes: E43 E51 E52 G21 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2022-11
New Economics Papers: this item is included in nep-ban and nep-mon
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