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

Author

Listed:
  • Md. Shahidul Islam

    (Department of Banking and Insurance, University of Dhaka)

  • Shin-Ichi Nishiyama

    (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.

Suggested Citation

  • Md. Shahidul Islam & Shin-Ichi Nishiyama, 2020. "The Determinants of Net Interest Margins of Commercial Banks: Panel Evidence from China, India and Japan," Discussion Papers 2014, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:2014
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    File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2020/2014.pdf
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    References listed on IDEAS

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