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Determinants of Bank Interest Margins in Sub-Saharan Africa

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  • Calixte Ahokpossi

Abstract

Financial intermediation is low in sub-Saharan Africa (SSA) compared to other regions of the world. This paper examines the determinants of bank interest margins using a sample of 456 banks in 41 SSA countries. The results show that market concentration is positively associated with interest margins, but the impact depends on the level of efficiency of each bank. In particular, compared to inefficient banks, efficient ones increase their margins more in concentrated markets. This indicates that policies that promote competition and reduce market concentration would help lower interest margins in SSA. The results also show that bank-specific factors such as credit risk, liquidity risk, and bank equity are important determinants of interest margins. Finally, interest margins are sensitive to inflation, but not to economic growth or public or foreign ownership. There are regional differences within SSA regarding the level of interest margins even after controlling for other factors.

Suggested Citation

  • Calixte Ahokpossi, 2013. "Determinants of Bank Interest Margins in Sub-Saharan Africa," IMF Working Papers 13/34, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/34
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    References listed on IDEAS

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    2. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, vol. 63(1), pages 113-134, October.
    3. Claeys, Sophie & Vander Vennet, Rudi, 2008. "Determinants of bank interest margins in Central and Eastern Europe: A comparison with the West," Economic Systems, Elsevier, vol. 32(2), pages 197-216, June.
    4. Demirguc-Kunt, Asli & Laeven, Luc & Levine, Ross, 2004. "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 593-622, June.
    5. 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.
    6. R. Gaston Gelos, 2009. "Banking Spreads In Latin America," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 796-814, October.
    7. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    8. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 581-600, November.
    9. Carbo Valverde, Santiago & Rodriguez Fernandez, Francisco, 2007. "The determinants of bank margins in European banking," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2043-2063, July.
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    Cited by:

    1. Agyenim Boateng & Simplice Asongu & Raphael Akamavi & Vanessa Tchamyou, 2016. "Information Asymmetry and Market Power in the African Banking Industry," Working Papers 16/032, African Governance and Development Institute..
    2. Benedicte Vibe Christensen, 2014. "Financial integration in Africa: implications for monetary policy and financial stability," BIS Papers chapters,in: Bank for International Settlements (ed.), The role of central banks in macroeconomic and financial stability, volume 76, pages 11-28 Bank for International Settlements.
    3. Florian LEON, 2015. "What do we know about the role of bank competition in Africa?," Working Papers 201516, CERDI.
    4. Asongu, Simplice & Le Roux, Sara & Tchamyou, Vanessa, 2016. "Essential Information Sharing Thresholds for Reducing Market Power in Financial Access: A Study of the African Banking Industry," MPRA Paper 76120, University Library of Munich, Germany.
    5. Simplice Asongu & Enowbi Batuo & Jacinta Nwachukwu & Vanessa Tchamyou, 2016. "Is information diffusion a threat to market power for financial access? Insights from the African banking industry," Working Papers 16/039, African Governance and Development Institute..
    6. J. Acalin & B. Cabrillac & G. Dufrénot & L. Jacolin & S. Diop, 2015. "Financial integration and growth correlation in Sub-Saharan Africa," Working papers 561, Banque de France.
    7. Simplice Asongu & Nicholas Biekpe, 2017. "ICT, Information Asymmetry and Market Power in the African Banking Industry," Working Papers 17/022, African Governance and Development Institute..
    8. repec:ers:journl:v:xx:y:2017:i:2a:p:90-108 is not listed on IDEAS

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