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The Determinants of Net Interest Margins of Commercial Banks in Mainland China

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  • Kaiguo Zhou
  • Michael C. S. Wong

Abstract

This paper studies empirically the determinants of Chinese commercial banks' net interest margins from 1996 to 2003. It applies an extension to the Ho and Saunders (1981) model to identify the elements affecting net interest margins. The results indicate that the determinants of net interest margins in the Chinese market include market competition structure, average operating costs, degree of risk aversion, transaction size, implicit interest payments, opportunity cost of reserve, and management efficiency.

Suggested Citation

  • Kaiguo Zhou & Michael C. S. Wong, 2008. "The Determinants of Net Interest Margins of Commercial Banks in Mainland China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(5), pages 41-53, September.
  • Handle: RePEc:mes:emfitr:v:44:y:2008:i:5:p:41-53
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    References listed on IDEAS

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    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, vol. 13(2), pages 379-408, May.
    2. Molyneux, Philip & Thornton, John, 1992. "Determinants of European bank profitability: A note," Journal of Banking & Finance, Elsevier, vol. 16(6), pages 1173-1178, December.
    3. Maria Soledad Martinez Peria & Ashoka Mody, 2004. "How foreign participation and market concentration impact bank spreads: evidence from Latin America," Proceedings, Federal Reserve Bank of Cleveland, pages 511-542.
    4. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
    5. 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.
    6. 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.
    7. Angbazo, Lazarus, 1997. "Commercial bank net interest margins, default risk, interest-rate risk, and off-balance sheet banking," Journal of Banking & Finance, Elsevier, vol. 21(1), pages 55-87, January.
    8. McShane, R. W. & Sharpe, I. G., 1985. "A time series/cross section analysis of the determinants of Australian trading bank loan/deposit interest margins: 1962-1981," Journal of Banking & Finance, Elsevier, vol. 9(1), pages 115-136, March.
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    Citations

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    Cited by:

    1. López-Espinosa, Germán & Moreno, Antonio & Pérez de Gracia, Fernando, 2011. "Banks' Net Interest Margin in the 2000s: A Macro-Accounting international perspective," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1214-1233, October.
    2. Aydemir, Resul & Ovenc, Gokhan, 2016. "Interest rates, the yield curve and bank profitability in an emerging market economy," Economic Systems, Elsevier, vol. 40(4), pages 670-682.
    3. Oleksandr Talavera & Lin Xiong & Xiong Xiong, 2012. "Social Capital and Access to Bank Financing: The Case of Chinese Entrepreneurs," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(1), pages 55-69, January.
    4. repec:eee:riibaf:v:43:y:2018:i:c:p:34-47 is not listed on IDEAS
    5. Tatum Blaise Pua Tan, 2012. "Determinants of Credit Growth and Interest Margins in the Philippines and Asia," IMF Working Papers 12/123, International Monetary Fund.
    6. Aydemir, Resul & Guloglu, Bulent, 2017. "How do banks determine their spreads under credit and liquidity risks during business cycles?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 147-157.
    7. Meng-Wen Wu & Chung-Hua Shen & Chin-Hwa Lu & Chia-Chung Chan, 2012. "Impact of Foreign Strategic Investors on Earnings Management in Chinese Banks," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 115-133, September.
    8. Meng-Wen Wu & Chung-Hua Shen & Chin-Hwa Lu & Chia-Chung Chan, 2012. "Impact of Foreign Strategic Investors on Earnings Management in Chinese Banks," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 115-133, September.
    9. Enzo Dia & Lunan Jiang & Lorenzo Menna & Lin Zhang, "undated". "Common Banking across Heterogenous Regions," CFDS Discussion Paper Series 2018/2, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    10. Oleksandr Talavera & Lin Xiong & Xiong Xiong, 2012. "Social Capital and Access to Bank Financing: The Case of Chinese Entrepreneurs," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(1), pages 55-69, January.
    11. Marie Luise Funke & Helena Xiang Li & Horst Löchel, 2016. "The High Profitability of Big Chinese State-Owned Banks and China’s Growth Model," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 121-134, August.

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