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The Determinant of Commercial Banks' Interest Margin in Indonesia: An Analysis of Fixed Effect Panel Regression

Author

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  • Pamuji Gesang Raharjo

    (Post Graduate Student of Bogor Agriculture University, Indonesia.)

  • Dedi Budiman Hakim

    (Postgraduate School of Bogor Agriculture University, Indonesia.)

  • Adler Hayman Manurung

    (Postgraduate School of Bogor Agriculture University, Indonesia.)

  • Tubagus N.A. Maulana

    (Postgraduate School of Bogor Agriculture University, Indonesia.)

Abstract

The purpose of this research is to study and analyze the determinant factors of commercial banks' interest margin in Indonesia, both internal factors (bank specific factors) and external factors. Internal factors are selected under this study consists of several aspects such as growth of the bank's assets, profitability, efficiency, capital adequacy, liquidity, and risk, meanwhile external factors are market power, inflation, and interest rates. Several variables have been used in previous studies to be used as a proxy. The study applied fixed effects on a panel data regression model to a panel of Indonesian commercial banks that covers the period 2008 2012. The results show consistent findings from previous studies. The net interest margin of Indonesian commercial banks are affected by the entire internal variables on a different level of significance, meanwhile inflation is the only external factors that affects on interest margins significantly at 5% level.

Suggested Citation

  • Pamuji Gesang Raharjo & Dedi Budiman Hakim & Adler Hayman Manurung & Tubagus N.A. Maulana, 2014. "The Determinant of Commercial Banks' Interest Margin in Indonesia: An Analysis of Fixed Effect Panel Regression," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 295-308.
    • Handle: RePEc:eco:journ1:2014-02-7
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    References listed on IDEAS

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    7. Sapto Jumono & Abdurrahman & Chajar Matari Fath Mala, 2017. "Market Concentration Index and Performance: Evidence from Indonesian Banking Industry," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 249-258.
    8. Andrey Gurov & Milena Nikolova & Elena Stoyanova, 2018. "Behavioral Economics In Banking: Behavioral Factors As Determinants Of The Interest Rate Spread," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 6(3), pages 72-82.

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    More about this item

    Keywords

    net interest margin; commercial bank; panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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