PL EN


2017 | 1(7) | 5-27
Article title

Determinants of Banks’ Net Interest Margins in Honduras

Content
Title variants
Languages of publication
EN
Abstracts
EN
This paper analyzes the determinants of banks’ net interest margins in Honduras during the years 1998 to 2013 – a period characterized by increasing banks’ net interest margins, foreign bank participation and consolidation. In line with findings in the previous literature, we find that operating costs are the most important drivers of banks’ net interest margins. We also find that competition among banks has led to higher concentration and that funding by parent banks positively impacts foreign banks’ net interest margins. Together, these results suggest that banks, particularly foreign banks, are under pressure to consolidate and reduce operating costs in order to offer competitive interest margins. We conclude that further structural reforms and consolidation may lower banks’ net interest margins.
Year
Issue
Pages
5-27
Physical description
Dates
online
2017-05-19
Contributors
author
author
References
  • Allen, L., 1988, “The determinants of Bank Interest Margins: A Note,” Journal of Financial and Quantitative Analysis, 23(2), pp. 231–35.
  • Angbanzo, L., 1997, “Commercial Bank Net Interest Margins, Default Risk, Interest-Rate Risk, and Off-Balance Sheet Banking,” Journal of Banking and Finance, 21, pp. 55–87.
  • Arellano, M., and O. Bover 1995, “Another Look at the Instrumental-Variable Estimation of Error-Components Models,” Journal of Econometrics, Vol. 68 (1), pp. 29–51.
  • Barajas, A., R. Steiner and N. Salazar, 1999, “Interest Spreads in Banking in Colombia 1974–96,” IMF Staff Papers, 46, pp. 196–224.
  • Beck, N., and N. Katz, 1995, “What to Do (and Not to Do) with Time-Series Cross-Section Data,” American Political Science Review, Vol. 89, pp. 634–47.
  • Beck, N., and N. Katz, 1996, “Nuisance vs. Substance: Specifying and Estimating Time-Series-Cross-Section Models, Political Analysis, 6, pp. 1–36.
  • Bernanke, B.S., and M. Gertler, 1989, “Agency Costs, Net Worth, and Business Fluctuations,” American Economic Review, 79, pp. 14–31.
  • Blackwell, J. L. III, 2005, “Estimation and Testing of Fixed-Effect Panel-Data Systems,” The Stata Journal, 5, Number 2, pp. 202–7.
  • Blundell, R. W., and S. R. Bond, 1998, “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models,” Journal of Econometrics, Vol. 87, pp. 115-143.
  • Bonin, J., I. Hasan, and P. Wachtel, (2005), “Privatization matters: bank effi ciency in transition Countries,” Journalof Banking & Finance, 29 (1), pp. 31-53.
  • Boone, J., and J. Weigand, 2000, “Measuring Competition in the Dutch Manufacturing Sector: How are Cost Differentials Mapped into Profi t Differentials,” CPB Working Paper No. 131, Den Haag
  • Brock, P., and L. Rojas-Suarez, 2000, “Understanding the Behavior of Bank Spreads in Latin America,” Journal of Development Economics, Vol. 63 (1), pp. 113–34.
  • Brock, P., and H. Franken, 2002, “Bank Interest Margins Meet Interest Rate Spreads: How Good is Balance Sheet Data for Analyzing the Cost of Financial Intermediation?” available at http://scid.stanford.edu/people/mckinnon_program/BrockV2/pdf.
  • Brock, P., and H. Franken, 2003, “Measuring the Determinants of Average and Marginal Bank Interest Rate Spreads in Chile, 1994-2001. Available at www.econ.washington.edu/user/plbrock/ChileSpreads091603.pdf.
  • Carbo-Valverde, S. and F. Rodriguez-Fernandez, 2007, “The Determinants of Bank Margins in European Banking,” Journal of Banking and Finance, 31, pp. 2043–63.
  • Cetorelli, N., and L. Goldberg, 2012a, “Banking Globalization and Monetary Transmission,” Journal of Finance, 67, pp. 1811–43.
  • Cetorelli, N., and L. Goldberg, 2012b, “Liquidity Management of U.S. Global Banks: Internal Capital Markets in the Great Recession,” Journal of International Economics, 88(2), pp. 299–311.
  • Chava, S., and A. Purnanandam, 2011, “The Effect of Banking Crisis on Bank-Dependent Borrowers,” Journal of Financial Intermediation, 19, pp. 1–25.
  • Chirwa, E. and M. Mlachila, 2004, “Financial reforms and interest rate spreads in the commercial banking system in Malawi, IMF Staff Papers, 51, pp. 96–122.
  • Claessens, S., A. Demirguc-Kunt, and H. Huizinga, 2001, “How Does Foreign Entry Affect Domestic Banking Markets,” Journal of Banking and Finance, 25, pp. 891–911.
  • Dell’Ariccia, G., and R. Marquez, 2003, “Information and Bank Credit Allocation,” Available at SSRN: http://ssrn.com/abstract=431300.
  • Demirguc-Kunt, A., and H. Huizinga, 1998, “Determinants of Commercial Bank Interest Margins and Profi tability: Some International Evidence,” Policy Research Working Paper, WPS1900, (Washington: World Bank).
  • Demirguc-Kunt, A., and L. Laeven, and R. Levine, 2003, “The Impact of Bank Regulations, Concentration, and Institutions on Bank Margins,” mimeo, (Washington: The World Bank).
  • Dumicic, M., and T. Ridzak, 2012, “Determinants of Banks’ Net Interest Margins in Central and Eastern Europe,” Financial Theory and Practice, Croatian National Bank.
  • Financial System Stability Assessment (FSSA) for Honduras, 2009, SM/09/21, (Washington: International Monetary Fund).
  • Freixas, X., and J. Rochet, 2008, Microeconomics of Banking, 2nd Edition, Massachusetts Institute of Technology, The MIT Press.
  • Fungacova, Z., and T. Poghosyan, 2009, “Determinants of Bank Interest Margins in Russia: Does Bank Ownership Matter?” BOFIT Discussion Papers 22.
  • Gelos, R. G., 2006, “Banking Spreads in Latin America,” IMF Working Paper No. WP/06/44.
  • Hesse, H., 2007, “Financial Intermediation in the Pre-Consolidation Banking Sector in Nigeria,” World Bank Policy Research Working Paper 4267.
  • Hicks, A., 1994, “Introduction to Pooling,” in T. Janoski and A. Hicks (edited by), The Comparative Policy Economy of the Welfare State, Cambridge University Press.
  • Ho, T., and A. Saunders, 1981, “The Determinants of Bank Interest Margins: Theory and Empirical Evidence,” Journal of Financial and Quantitative Analysis, 16(4), pp. 581–600.
  • Holton, S., R. Kelly, R. Lydon, A. Monks, and N. O’Donnell, 2013, “The Impact of the Financial Crisis on Banks’ Net Interest Margins,” Economic Letter Series, Central Bank of Ireland.
  • Horvath, R., 2009, “The Determinants of the Interest Rate Margins of Czech Banks,” Czech Journal of Economics and Finance, 59(2), pp. 128–36.
  • Huybens, E. and Smith, B. (1999). “Infl ation, fi nancial markets, and long-run real activity,” Journal of Monetary Economics, 43, pp. 283–315.
  • IMF (2001), Hoduras—Selected Issues, SM/01/286, (Washington: International Monetary Fund).
  • Jönsson, K., 2005, “Cross-Sectional Dependency and Size Distribution in a Small-sample Homogeneous Panel-Data Unit Root Test,” Oxford Bulletin of Economics and Statistics, Vol. 63, pp. 369–92.
  • Klein, M., 1971, “A Theory of the Banking Firm,” Journal of Money, Credit and Banking, 3, pp. 205–18.
  • Martinez, M. S., and A. Mody, (2004), “How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America, Journal of Money Credit and Banking, 36 (3), pp. 511–37.
  • Maudos, J., and J. Fernandez de Guevara, 2004, “Factors Explaining the Interest Margin in the Banking Sectors of the European Union,” Journal of Banking and Finance, 28, pp. 2259–81.
  • Maudos, J., and L. Solis, 2009, “The Determinants of Net Interest Income in the Mexican Banking System: An Integrated Model,” EC Working Paper Series No. 2009–05.
  • McShane, R., and I. Sharpe, 1985, “A Time Series-Cross Section Analysis of the Determinants of Australian Trading Bank Loan-Deposit Interest Margins: 1962–1981,” Journal of Banking and Finance, 9(1), pp. 115–36.
  • Micco, A., U. Panizza, and M. Yanez, 2007, Bank Ownership and Performance: Does Politics Matter?” Journal of Banking and Finance, 31, pp. 219–41.
  • Mody, A., 2009, “From Bear Stearns to Anglo Irish: How Eurozone Sovereign Spreads Related to Financial Sector Vulnerability,” IMF Working Paper No. WP/09/108.
  • Monti, M., 1972, “Deposit, Credit, and Interest Rate Determination under Alternative Bank Objectives,” In Mathematical Methods in Investment and Finance, ed. G.P. Szego and K. Shell. Amsterdam: North-Holland.
  • Moore, W., and R. Craigwell, 2000, “Market Power and Interest Rate Spreads in the Caribbean,” Paper Presented at the XXXII Annual Monetary Studies Conference, Kingston, Jamaica.
  • Pineda, D., 2010, “Determinantes del Spread Bancario en Honduras,” Banco Central de Honduras, UIE/DI-003/2010.
  • Podestà, F., 2000, “Recent Developments in Quantitative Comparative Methodology: The Case of Pooled Time Series Cross-Section Analysis, DSS Papers SOC 3-02.
  • Poghosyan, T., 2010, “Re-examining the impact of foreign bank participation on interest margins in emerging markets,” Emerging Markets Review, Vol. 11, Issue4, pp. 390–403.
  • Rajan, G.R., and L. Zingales, 1998, “Which Capitalism? Lessons from the East Asian Crisis,” Journal of Applied Corporate Finance, Vol. 11, No. 3, Fall 1998.
  • Saunders, A., and L. Schumacher, 2000, “The Determinants of bank interest margins: An International study,” Journal of International Money and Finance, Vol. 19, Issue 6, pp. 813–32.
  • Schwaiger, M. and D. Liebeg, 2008, “Determinants of Bank Interest Margins in Central and Eastern Europe,” OeNB Financial Stability Report, Austrian National Bank.
  • Sengupta, R., 2007, “Foreign entry and bank competition, Journal of Financial Economics 84, pp. 502–28.
  • Tábora, M., 2007, “Competencia y regulación en la Banca: caso de Honduras,” CEPAL, Unidad de Comercio Internacional e Industria. Serie Estudios y Perspectiva, No. 91. Noviembre (Mexico).
  • Tan, T.B.P. (2012), “Determinants of Credit Growth and Interest Margins in the Philippines and Asia,” IMF Working Paper 12/123 (Washington: International Monetary Fund).
  • Tennant, D. and A. Folawewo, 2009, “Macroeconomic and Market Determinants of Banking Sector Interest Rate Spreads: Empirical Evidence from Low- and Middle-Income Countries,” Applied Financial Economics, Vol. 19,Issue 6, pp. 489–507.
  • Williams, B., 2007, “Factors Determining Net Interest Margins in Australia: Domestic and Foreign Banks,” Financial Markets, Institutions and Instruments, 16(3), pp. 145–65.
Document Type
Publication order reference
Identifiers
ISSN
2353-6845
YADDA identifier
bwmeta1.element.desklight-cb29307d-e94a-496a-a79c-aa3f69669fe3
JavaScript is turned off in your web browser. Turn it on to take full advantage of this site, then refresh the page.