Determinants of the net interest margins in BH banks

Abstract

This study investigates the determinants of the net interest margins of domestic and foreign banks in Turkey using the Ho and Saunders's (1981) two-step dealer model. In the first step, a panel data random effects model is used to determine the effect of bank specific factors. The result of the panel data analysis shows that banks' market share and management quality have a negative relations, whereas operating costs, risk aversion and bank size have a positive relationship with the net interest margin. In addition, it was found that foreign banks have higher net interest margins. In the second step, pure spreads were regressed against macroeconomic variables. The result of the regression shows that only inflation rate is the significant factor that explains the pure spreads. JEL Classification Codes: G21, E43, C23.