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Determinants of Interest Margins of Banks in Sri Lanka

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  • S.M. Susanthi Medha Kumari

Abstract

Net interest margin (NIM) is an indicator of the level of efficiency of financial intermediation by banks. This study analyses the determinants of NIMs of domestic banks of Sri Lanka for the period of January 2002 to March 2011 based on the model developed by Ho and Saunders and its extensions using panel regression. Sri Lankan banks are inward looking in setting NIMs as operating costs, credit risk, risk aversion, non-interest income and capital adequacy requirements are determinants. Market competition, other regulations on banks, risk arising from the volatility of market prices and macroeconomic variables do not have a significant impact on the determination of NIMs.

Suggested Citation

  • S.M. Susanthi Medha Kumari, 2014. "Determinants of Interest Margins of Banks in Sri Lanka," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 15(2), pages 265-280, September.
    • Handle: RePEc:sae:soueco:v:15:y:2014:i:2:p:265-280
    DOI: 10.1177/1391561414548952
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    References listed on IDEAS

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    More about this item

    Keywords

    Interest margin; banks; Sri Lanka;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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