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Determinants of banks’ net interest margins in Central and Eastern Europe

Author

Listed:
  • Mirna Dumicic

    (Croatian National Bank, Zagreb, Croatia)

  • Tomislav Rizdak

    (Croatian National Bank, Zagreb, Croatia)

Abstract

This research analyzes the main determinants of the net interest margin of banks operating in Central and Eastern European (CEE) countries in the period from 1999 to 2010. The results reveal several main drivers of net interest margins in the CEE. Prior to 2008 the net interest margins declined primarily due to strong capital inflows and stable macroeconomic environment. In the crisis period, significant rise in government debt accompanied by the increase in macroeconomic risks and abating capital inflows were pushing margins up while other factors such as low credit demand, higher capitalization and significantly increased share of non-performing loans pressured banks’ margins down. The results also confirm the important contribution of higher efficiency to lowering banks’ margins.

Suggested Citation

  • Mirna Dumicic & Tomislav Rizdak, 2013. "Determinants of banks’ net interest margins in Central and Eastern Europe," Financial Theory and Practice, Institute of Public Finance, vol. 37(1), pages 1-37.
    • Handle: RePEc:ipf:finteo:v:37:y:2013:i:1:p:1-37
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    Citations

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    Cited by:

    1. Ameha Tefera Tessema & Jan Walters Kruger, 2017. "An Improvement on An Interest Rate Commission Agent Banking System Model (AIRCABS Model)," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 685-705.
    2. Konstantins Benkovskis & Olegs Tkacevs & Karlis Vilerts, 2021. "Interest Rate Spreads in the Baltics and the Rest of the Euro Area: Understanding the Factors behind the Differences," Discussion Papers 2021/02, Latvijas Banka.
    3. Nana Kwasi Karikari & Kwadwo Kwakye Gyan & Muhammad Ahad Hayat Khan & Baah Aye Kusi, 2023. "Institutional quality and social cost of intermediation in Africa: Does the level of financial market development matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1899-1910, April.
    4. Maria Carmen HUIAN & Marilena MIRONIUC & Oana Iuliana MIHAI, 2018. "Studying banking performance from an accounting perspective: Evidence from Europe," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(615), S), pages 5-26, Summer.
    5. Catalán-Herrera, Juan & Arriaza, Juan Carlos & Alvarado, Ricardo, 2019. "Is the financial accelerator story, empirically relevant for the determinants of the interest rate spread?," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 37-47.
    6. Olalere Oluwaseyi Ebenezer & Md. Aminul Islam & Wan Sallha Yusoff & Farid Ahammad Sobhani, 2019. "Exploring Liquidity Risk and Interest-Rate Risk: Implications for Profitability and Firm Value in Nigerian Banks," Journal of Reviews on Global Economics, Lifescience Global, vol. 8, pages 315-326.
    7. Olalere Oluwaseyi Ebenezer & Md Aminul Islam & Mohd Zukime Mat Junoh & Wan Sallha Yusoff, 2019. "The Effects of Financing Risk on the Value of Firm and Profitability: Evidence from Nigerian Commercial Banks," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(7), pages 864-874, July.

    More about this item

    Keywords

    net interest margin; CEE;

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