Determinants of Commercial Bank Interest Rate Margins in Swaziland.

Abstract

The study analysed the determinants of commercial bank interest rate margins in Swaziland using bankspecific, industry-specific and macroeconomic data for the period 1997-2008. Panel data techniques were used for analytical work. The study used two different measures of interest rate margin, namely, the net and narrow interest rate margins (NIM and NAIM) as dependent variables. The empirical results indicate that increases in overhead costs, liquidity, equity, bank market power (or concentration), South Africa's interest rate (T-bill rate) and changes in exchange rates have significant effects on the rise in NAIM while intermediation has a negative effect. On the other hand, a rise in overhead costs has a significant positive effect on the NIM whereas liquidity has a negative effect. The study findings underscore the importance of enhancing the efficiency of the financial sector through reduction of intermediation margins to boost investment and economic growth in Swaziland. [ABSTRACT FROM AUTHOR]