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The determinants of net interest margin during transition

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  • Maria-Eleni K. Agoraki

    (Athens University of Economics and Business)

  • Georgios P. Kouretas

    (Athens University of Economics and Business
    IPAG Business School)

Abstract

In this paper we examine the banking sector of the Central and Eastern European (CEE) countries during the transition period 1998–2016 in a number of critical dimensions. We place particular importance on the effect that the regulatory framework along with a group of bank-specific, industry-specific and macroeconomic factors have on the net interest margin (NIM) in the banking sectors of the Central and Eastern European countries over the period 1998–2016. In addition to the standard determinants employed in the literature, the present study provides a unique natural experiment to examine the effect of the extensive banking sector reform that took place during the examined period in the CEE countries. We employ both static and dynamic frameworks as well as advanced market structure measures and we argue that net interest margin is determined by bank-specific characteristics such as equity capital, risk and operational inefficiency. Furthermore, it is shown that the regulatory framework as well as the presence of foreign-owned institutions in the CEE countries play an important role in determining NIM. However, as financial systems develop and the reform process ends, both the current and future rates of economic growth are likely to have an enhanced impact on bank margins.

Suggested Citation

  • Maria-Eleni K. Agoraki & Georgios P. Kouretas, 2019. "The determinants of net interest margin during transition," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 1005-1029, November.
  • Handle: RePEc:kap:rqfnac:v:53:y:2019:i:4:d:10.1007_s11156-018-0773-y
    DOI: 10.1007/s11156-018-0773-y
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    More about this item

    Keywords

    Net interest margin; Central Eastern European banking; Banking sector reform;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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