Financial intermediation costs in low income countries: The role of regulatory, institutional, and macroeconomic factors
AbstractWe analyze factors driving persistently higher financial intermediation costs in low-income countries (LICs) relative to emerging market (EM) country comparators. Using the net interest margin as a proxy for financial intermediation costs at the bank level, we find that within LICs a substantial part of the variation in interest margins can be explained by bank-specific factors: margins tend to increase with higher riskiness of credit portfolio, lower bank capitalization (or lower risk aversion), and smaller bank size. Overall, we find that concentrated market structures and lack of competition in LICs banking systems and institutional weaknesses constitute the key impediments preventing financial intermediation costs from declining. Our results provide strong evidence that policies aimed at fostering banking competition and strengthening institutional frameworks can reduce intermediation costs in LICs.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Systems.
Volume (Year): 37 (2013)
Issue (Month): 1 ()
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Interest margins; Financial intermediation; Dealership model; Bank concentration; Bank regulation;
Other versions of this item:
- Tigran Poghosyan, 2012. "Financial Intermediation Costs in Low-Income Countries: The Role of Regulatory, Institutional, and Macroeconomic Factors," IMF Working Papers 12/140, International Monetary Fund.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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