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Macroeconomic, Market and Bank-Specific Determinants of the Net Interest Margin in Austria

  • Ulrich Gunter

    ()

    (MODUL University Vienna, Department of Tourism and Service Management)

  • Gerald Krenn

    ()

    (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division)

  • Michael Sigmund

    ()

    (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division)

Registered author(s):

    The objective of this article is to identify key determinants of the net interest margin (NIM) in the Austrian banking sector. In Austria, the NIM is one of the most important income drivers of banks given the importance of relationship banking, where interest income dominates other sources of revenue. However, the NIM differs substantially among Austrian banks. Drawing on a unique supervisory dataset for the Austrian banking sector of around 42,000 observations between the first quarter of 1996 and the second quarter of 2012, we analyze under which circumstances a bank has a relatively high or low NIM. We contribute to the empirical literature on the NIM by factoring in a bank’s business model in terms of its balance sheet structure and by accounting for the financial crisis from the third quarter of 2007 onward. Our estimation results suggest that not only the determinants identified in the existing empirical literature (different types of non-interest income and expenses, various risk measures, competition, macroeconomic environment) have a significant influence on the NIM, but also our two innovations (balance sheet structure, financial crisis).

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    File URL: http://www.oenb.at/dms/oenb/Publikationen/Finanzmarkt/Financial-Stability-Report/2013/Financial-Stability-Report-25/chapters/fsr_25_report_special_topics4_tcm16-256590.pdf
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    Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Financial Stability Report.

    Volume (Year): (2013)
    Issue (Month): 25 ()
    Pages: 87-101

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    Handle: RePEc:onb:oenbfs:y:2013:i:25:b:4
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    1. Markus Leibrecht & Martin Schneider, 2006. "AQM-06: The Macro economic Model of the OeNB," Working Papers 132, Oesterreichische Nationalbank (Austrian Central Bank).
    2. Delis, Manthos D & Kouretas, Georgios, 2010. "Interest rates and bank risk-taking," MPRA Paper 20132, University Library of Munich, Germany.
    3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    4. Marrouch, Walid & Turk-Ariss, Rima, 2012. "Bank pricing under oligopsony-oligopoly: Evidence from 103 developing countries," BOFIT Discussion Papers 1/2012, Bank of Finland, Institute for Economies in Transition.
    5. Memmel, Christoph & Schertler, Andrea, 2011. "Banks' management of the net interest margin: Evidence from Germany," Discussion Paper Series 2: Banking and Financial Studies 2011,13, Deutsche Bundesbank, Research Centre.
    6. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
    7. Nicolas Albacete & Pirmin Fessler & Martin Schürz, 2012. "Risk Buffer Profiles of Foreign Currency Mortgage Holders," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 23, pages 58-71.
    8. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
    9. Entrop, Oliver & Memmel, Christoph & Ruprecht, Benedikt & Wilkens, Marco, 2012. "Determinants of bank interest margins: Impact of maturity transformation," Discussion Papers 17/2012, Deutsche Bundesbank, Research Centre.
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