Impact of Net Stable Funding Ratio Regulations on Net Interest Margin: A Multi-Country Comparative Analysis

Abstract

We empirically investigate the impact of liquidity framework proposed under Basel III, namely Net Stable Funding Ratio on Net Interest Margin for 385 banks in SAARC countries (Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka) along with five developed countries i.e. Australia, Canada, China, Japan and United State over 2003-2013. The NSFR in Basel III liquidity necessity intended to limit funding risk emerging from maturity conflicts between assets and liabilities of overall countries. The results indicate that there is also a gap between developing and developed countries to managing the stability of their funding source as well as liquidity of its assets is a benefit to them and is also transformed into net interest margin by comparison of developing and developed countries. In addition, this study also proved the findings of previous researches in developed countries that are relevant to bank determinants and net interest margin in the world.