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Consolidation and commercial bank net interest margins: Evidence from the old and new European Union members and candidate countries

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  • Kasman, Adnan
  • Tunc, Gokce
  • Vardar, Gulin
  • Okan, Berna
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    Abstract

    This paper examines the effects of financial reforms on the determinants of commercial bank net interest margin in the banking systems of the new EU member countries and candidate countries by dividing the sample period (1995-2006) into two sub-periods: consolidation period (1995-2000) and post-consolidation period (2001-2006). The paper also compares the new and old EU members to check whether differences with respect to the determinants of net interest margins between these two groups of countries exist within the same time period. The results indicate that size and managerial efficiency are negatively and significantly related to net interest margins in the two sub-periods. Regulators should promote merger and acquisition and market entry in order to increase the scale and efficiency of banks operating in the sector. Exploitation of the scale economies seems to be important in decreasing the interest rate spread in the sampled banking sectors. The results further indicate that all macroeconomic variables are statistically insignificant in the second sub-period, suggesting that differences in macroeconomic fundamentals have decreased among the sampled countries due to the increased convergence process in recent years. As for the comparison of the new and old EU members, the results suggest that the financial and economic convergence between the new and old members has not been completed. Macroeconomic differences within the group and between the groups still exist.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 27 (2010)
    Issue (Month): 3 (May)
    Pages: 648-655

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    Handle: RePEc:eee:ecmode:v:27:y:2010:i:3:p:648-655

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Consolidation Net interest margin EU banking Transition economies;

    References

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    1. Demirguc-Kunt, Asli & Huizinga, Harry, 1998. "Determinants of commercial bank interest margins and profitability : some international evidence," Policy Research Working Paper Series 1900, The World Bank.
    2. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, vol. 63(1), pages 113-134, October.
    3. Jude S. Doliente, 2005. "Determinants of bank net interest margins in southeast asia," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(1), pages 53-57, January.
    4. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
    5. Maudos, Joaquin & Fernandez de Guevara, Juan, 2003. "Factors Explaining the Interest Margin in the Banking Sectors of the European Union," MPRA Paper 15252, University Library of Munich, Germany.
    6. Allen, Linda, 1988. "The Determinants of Bank Interest Margins: A Note," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(02), pages 231-235, June.
    7. Drakos, Kostas, 2003. "Assessing the success of reform in transition banking 10 years later: an interest margins analysis," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 309-317, April.
    8. Hawtrey, Kim & Liang, Hanyu, 2008. "Bank interest margins in OECD countries," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 249-260, December.
    9. Claeys, Sophie & Vander Vennet, Rudi, 2008. "Determinants of bank interest margins in Central and Eastern Europe: A comparison with the West," Economic Systems, Elsevier, vol. 32(2), pages 197-216, June.
    10. Saunders, Anthony & Schumacher, Liliana, 2000. "The determinants of bank interest rate margins: an international study," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 813-832, December.
    11. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 581-600, November.
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    Cited by:
    1. Memmel, Christoph & Schertler, Andrea, 2011. "Banks' management of the net interest margin: Evidence from Germany," Discussion Paper Series 2: Banking and Financial Studies 2011,13, Deutsche Bundesbank, Research Centre.
    2. Chang, Chuen-Ping, 2014. "A barrier option framework for rescue package designs and bank default risks," Economic Modelling, Elsevier, vol. 38(C), pages 246-257.
    3. Lin, Jyh-Horng & Tsai, Jeng-Yan & Hung, Wei-Ming, 2014. "Bank equity risk under bailout programs of loan guarantee and/or equity capital injection," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 263-274.
    4. Christoph Memmel & Andrea Schertler, 2013. "Bank management of the net interest margin: new measures," Financial Markets and Portfolio Management, Springer, vol. 27(3), pages 275-297, September.
    5. Lin, Jyh-Horng & Hung, Wei-Ming, 2013. "A barrier option framework for bank interest margin management under anticipatory regret aversion," Economic Modelling, Elsevier, vol. 33(C), pages 794-801.
    6. Heryan, Tomas & Stavarek, Daniel, 2010. "How related are interbank and lending interest rates? Evidence on selected EU countries," MPRA Paper 27276, University Library of Munich, Germany.
    7. Tsai, Jeng-Yan, 2012. "Risk and regret aversions on optimal bank interest margin under capital regulation," Economic Modelling, Elsevier, vol. 29(6), pages 2190-2197.
    8. Tomáš HERYÁN & Daniel STAVÁREK, 2010. "How Related are Interbank and Lending Interest Rates? Evidence on Selected European Union Countries," European Financial and Accounting Journal, University of Economics, Prague, vol. 2010(3), pages 42-55.

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