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The Determinants of Net Interest Margin in the Ghanaian Banking Industry

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  • Franklin Amuakwa-Mensah
  • George Marbuah

Abstract

This study investigates the determinants of net interest margin and the role of the financial crisis in explaining net interest margin (NIM) in the banking industry in Ghana. Further, we assess the sensitivity of our results to the measure of credit risk. We observe a sharp drop in NIM and an increase in bad debt growth during the 2007-2009 financial crisis in Ghana's banking sector. Depending on the definition of credit risk, we observe marginal differences in the magnitude and significance of the determinants of NIM. Generally, NIM is explained by bank-specific, industry and macroeconomic factors. We find risk aversion, operating cost, inflation rate and previous year's GDP growth to be robust drivers of NIM.

Suggested Citation

  • Franklin Amuakwa-Mensah & George Marbuah, 2015. "The Determinants of Net Interest Margin in the Ghanaian Banking Industry," Journal of African Business, Taylor & Francis Journals, vol. 16(3), pages 272-288, September.
    • Handle: RePEc:taf:wjabxx:v:16:y:2015:i:3:p:272-288
    DOI: 10.1080/15228916.2015.1069679
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    References listed on IDEAS

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    1. Mr. Calixte Ahokpossi, 2013. "Determinants of Bank Interest Margins in Sub-Saharan Africa," IMF Working Papers 2013/034, International Monetary Fund.
    2. Mr. Nooman Rebei, 2014. "Determinants of Interest Rate Spreads in Solomon Islands," IMF Working Papers 2014/105, International Monetary Fund.
    3. Mr. Johan Mathisen & Thierry D. Buchs, 2005. "Competition and Efficiency in Banking: Behavioral Evidence from Ghana," IMF Working Papers 2005/017, International Monetary Fund.
    4. Were, Maureen & Wambua, Joseph, 2013. "Assessing the determinants of interest rate spread of commercial banks in Kenya: An empirical investigation," KBA Centre for Research on Financial Markets and Policy Working Paper Series 4, Kenya Bankers Association (KBA).
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    Cited by:

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    2. Samia Nur Jui & Rokibul Hasan Sakib & Md. Abu Rafsan, 2020. "Association between Interest Rate Changes and Profitability of Commercial Banks of Bangladesh," International Journal of Science and Business, IJSAB International, vol. 4(9), pages 17-37.
    3. Murad Khan & Abdul Jalil, 2020. "Determinants of Interest Margin in Pakistan: A Panel Data Analysis," Economies, MDPI, vol. 8(2), pages 1-14, March.
    4. Khoa Dang Duong & Hoi Vu Le & Duy Nhat Vu & Ai Ngoc Nhan Le, 2023. "Do Bank Funding Diversity and Bank Lending Affect Net Interest Margins? Evidence From Asia Markets Before and During the Covid-19 Pandemic," SAGE Open, , vol. 13(4), pages 21582440231, December.
    5. Mohammed Mizanur Rahman & Mahfuzur Rahman & Md. Abdul Kaium Masud, 2023. "Determinants of the Cost of Financial Intermediation: Evidence from Emerging Economies," IJFS, MDPI, vol. 11(1), pages 1-32, January.
    6. Salleh, Maisyarah & Possumah, Bayu Taufiq & Ahmat, Nizam, 2018. "Net Profit Margin Determinants of Islamic Subsidiaries of Conventional Banks in Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(2), pages 163-173.

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