Why are Net-Interest Margins Across Countries so Different?

Abstract

In this study, we use panel data from 121 countries over the period 1999-2012 to provide new evidence regarding why bank margins differ across countries. More specifically, we test whether, and, if so, by how much, country-level governance variables and bank-specific factors explain the net-interest margins over time. We find that both bank-specific factors and country-level governance variables are important determinants of the interest margins. We also investigate whether these determinants vary by the level of economic development by analyzing developed and developing countries separately. We find significant differences in the determinants of margins between developed and developing countries.

Keywords: Commercial Bank, Corporate Governance, Creditors’ Rights, Developing Countries, Legal Origin, Net-Interest Margin, Market Development, Judicial Efficiency

JEL Classification: D21, G15, G21