Exploring proxies of net interest margin : a comparative analysis of asian developed and emerging banking sector
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Abstract
This study aims to explore the proxies of Net Interest Margin (NIM) across banks in both developed and emerging Asian countries. The research spans from the first quarter of 2012 to the fourth quarter of 2023 and involves countries including Japan, Hong Kong, Singapore (developed) and Indonesia, Malaysia, and the Philippines (emerging). The estimation method is panel data, using fixed effects panel data regression to accommodate variations over time and across entities. The result showed that in developed countries, banks benefit from maintaining a low Cost-to-Income Ratio (CIR) and managing provisions effectively, enhancing operational efficiency and profitability. Challenges such as the negative impact of larger asset sizes and economic shocks like COVID-19 necessitate innovative and adaptive strategies. While in emerging countries, effective management of provisions, along with adapting to GDP growth and inflation impacts, is crucial. The negative effects of COVID-19 and inflation on Net Interest Margin (NIM) highlight the importance of resilient strategies that enhance efficiency and adapt to economic changes. For both regions, prioritizing effective provisions management and adapting to economic fluctuations are key to sustaining profitability
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How to Cite
Susanti, S., & Budhidharma, V. (2024). Exploring proxies of net interest margin : a comparative analysis of asian developed and emerging banking sector. Enrichment : Journal of Management, 14(3), 415-426. https://doi.org/10.35335/enrichment.v14i3.1957
References
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Obeid, R. (2022). Early Warning of Bank Failure in the Arab Region: A Logit Regression Approach. Asian Journal of Economics and Empirical Research, 9(2), 91–99. https://doi.org/10.20448/ajeer.v9i2.4120
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Russel, A. H. (2019). Of Commercial Banks in Bangladesh.
Sapci, A., & Miles, B. (2019). Bank size, returns to scale, and cost efficiency. Journal of Economics and Business, 105, 105842. https://doi.org/10.1016/j.jeconbus.2019.04.003
Saunders, A., & Cornett, M. M. (2018). Financial Institutions Management: A Risk Management Approach. (10th ed.). McGraw-Hill Education.
Shi, Z., Qin, S., Chiu, Y., Tan, X., & Miao, X. (2021). The impact of gross domestic product on the financing and investment efficiency of China’s commercial banks. Financial Innovation, 7(1), 35. https://doi.org/10.1186/s40854-021-00251-3
Tran, D. V., Hassan, M. K., Alam, A. W., & Dau, N. (2022). Banks’ financial soundness during the COVID-19 pandemic. Journal of Economics and Finance, 46(4), 713–735. https://doi.org/10.1007/s12197-022-09591-x
Ullah, S., Majeed, A., & Popp, J. (2023). Determinants of bank’s efficiency in an emerging economy: A data envelopment analysis approach. PLOS ONE, 18(3), e0281663. https://doi.org/10.1371/journal.pone.0281663
Umar, M. (2014). Conceptual Exposition of the Effect of Inflation on Bank Performance. Journal of World Economic Research, 3(5), 55. https://doi.org/10.11648/j.jwer.20140305.11
Westberg, Peter. (2023, May 4). Efficiency Ratio: Assessing Operational Effectiveness. https://quartr.com/insights/investing/efficiency-ratio-assessing-operational-effectiveness
Xiazi, X., & Shabir, M. (2022). Coronavirus pandemic impact on bank performance. Frontiers in Psychology, 13, 1014009. https://doi.org/10.3389/fpsyg.2022.1014009
Alessi, Lucia, Bruno, B., Carletti, E., & Neugebauer, K. (2020). What drives bank coverage ratios: Evidence from Europe. Publications Office. https://data.europa.eu/doi/10.2760/14133
Alexander. (2016, May 17). Winsorize: Definition, Examples in Easy Steps. Statistics How To. https://www.statisticshowto.com/winsorize/
Almaskati, N. (2022). The determinants of bank profitability and risk: A random forest approach. Cogent Economics & Finance, 10(1), 2021479. https://doi.org/10.1080/23322039.2021.2021479
Angori, G., Aristei, D., & Gallo, M. (2019). Determinants of Banks’ Net Interest Margin: Evidence from the Euro Area during the Crisis and Post-Crisis Period. Sustainability, 11(14), 3785. https://doi.org/10.3390/su11143785
Anis, I., Gani, L., Fauzi, H., Hermawan, A. A., & Adhariani, D. (2023). The sustainability awareness of banking institutions in Indonesia, its implication on profitability by the mediating role of operational efficiency. Asian Journal of Accounting Research, 8(4), 356–372. https://doi.org/10.1108/AJAR-06-2022-0179
Baltagi, B. H., Feng, Q., & Kao, C. (2009). Testing for Cross-sectional Dependence in Fixed E¤ects Panel Data Models.
Banu, M. (2019). Operational Efficiency of Indian Banking Sector- A Comparative Analysis.
Benzerrouk, Z., Abid, M., & Sekrafi, H. (2021). Pollution haven or halo effect? A comparative analysis of developing and developed countries. Energy Reports, 7, 4862–4871. https://doi.org/10.1016/j.egyr.2021.07.076
Beyer, R. (2024). Monetary Policy Pass-Through to Interest Rates: Stylized Facts from 30 European Countries. IMF Working Papers, 2024(009), 1. https://doi.org/10.5089/9798400263613.001
Bobbitt, Z. (2021, January 20). What is a Chow Test? (Explanation & Example). Statology. https://www.statology.org/chow-test/
Budhidharma, V., Sembel, R., Hulu, E., & Ugut, G. (2023). Early warning signs of financial distress using random forest and logit model. Corporate and Business Strategy Review, 4(4), 69–88. https://doi.org/10.22495/cbsrv4i4art8
Chan, S.-G., & Karim, M. Z. A. (2010). Bank Efficiency and Macro-economic Factors: The Case of Developing Countries. Global Economic Review, 39(3), 269–289. https://doi.org/10.1080/1226508X.2010.513141
Dawar, P. S., & Singla, A. (2013). Impact of Monetary Policy on Profitability of Banking Sector A study of public and private sector banks in India. International Journal of Engineering Research.
Drake, L., Hall, M. J. B., & Simper, R. (2006). The impact of macroeconomic and regulatory factors on bank efficiency: A non-parametric analysis of Hong KongÕs banking system.
Drucker, P. F. (1995). Managing in a Time of Great Change. Truman Talley Books/Dutton.
Gržeta, I., Žiković, S., & Tomas Žiković, I. (2023). Size matters: Analyzing bank profitability and efficiency under the Basel III framework. Financial Innovation, 9(1), 43. https://doi.org/10.1186/s40854-022-00412-y
Guastadisegni, L., Cagnone, S., Moustaki, I., & Vasdekis, V. (2022). Use of the Lagrange Multiplier Test for Assessing Measurement Invariance Under Model Misspecification. Educational and Psychological Measurement, 82(2), 254–280. https://doi.org/10.1177/00131644211020355
Hill, R. C., Griffiths, W. E., & Lim, G. C. (2018). Principles of econometrics (4. ed). Wiley.
Jouni, J., & Obeid, R. (2021). Determinants of Operational Efficiency in the Arab banking sector. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4214689
Kumar, C. A. M., Kiran, G., & Manikumar, K. (2017). EFFECT OF INFLATION ON BANKS PERFORMANCE.
Kumar, V., Acharya, S., & Ho, L. T. H. (2020). Does Monetary Policy Influence the Profitability of Banks in New Zealand? International Journal of Financial Studies, 8(2), 35. https://doi.org/10.3390/ijfs8020035
Li, X., Feng, H., Zhao, S., & Carter, D. A. (2021). The effect of revenue diversification on bank profitability and risk during the COVID-19 pandemic. Finance Research Letters, 43, 101957. https://doi.org/10.1016/j.frl.2021.101957
Lotto, J. (2019). Evaluation of factors influencing bank operating efficiency in Tanzanian banking sector. Cogent Economics & Finance, 7(1), 1664192. https://doi.org/10.1080/23322039.2019.1664192
Nelsen, T. C. (2023). Chapter Fourteen—Efficient design of experiments (DOE). Woodhead Publishing, In T. C. Nelsen (Ed.), Probability and Statistics for Cereals and Grains (pp. 201–214).
Obeid, R. (2021). Bank Failure Prediction in the Arab Region Using Logistic Regression Model. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4214709
Obeid, R. (2022). Early Warning of Bank Failure in the Arab Region: A Logit Regression Approach. Asian Journal of Economics and Empirical Research, 9(2), 91–99. https://doi.org/10.20448/ajeer.v9i2.4120
Obeid, R. (2024). Factors affecting net interest margin in the banking sector: Evidence from the Arab region. Journal of Governance and Regulation, 13(1), 214–222. https://doi.org/10.22495/jgrv13i1art19
Piri, D. R. (2021, September 28). World Bank Cuts Indonesia’s GDP Growth Projection to 3.7 Percent This Year. KOMPAS.Com. https://go.kompas.com/read/2021/09/28/183802674/world-bank-cuts-indonesias-gdp-growth-projection-to-37-percent-this-year
Piri, D. R. (2023, February 6). Indonesian Economic Growth Rises to Nine-Year High. KOMPAS.Com. https://go.kompas.com/read/2023/02/06/165408174/indonesian-economic-growth-rises-to-nine-year-high
Raharjo, P. G. (2014). The Determinant of Commercial Banks’ Interest Margin in Indonesia: An Analysis of Fixed Effect Panel Regression. 4(2).
Russel, A. H. (2019). Of Commercial Banks in Bangladesh.
Sapci, A., & Miles, B. (2019). Bank size, returns to scale, and cost efficiency. Journal of Economics and Business, 105, 105842. https://doi.org/10.1016/j.jeconbus.2019.04.003
Saunders, A., & Cornett, M. M. (2018). Financial Institutions Management: A Risk Management Approach. (10th ed.). McGraw-Hill Education.
Shi, Z., Qin, S., Chiu, Y., Tan, X., & Miao, X. (2021). The impact of gross domestic product on the financing and investment efficiency of China’s commercial banks. Financial Innovation, 7(1), 35. https://doi.org/10.1186/s40854-021-00251-3
Tran, D. V., Hassan, M. K., Alam, A. W., & Dau, N. (2022). Banks’ financial soundness during the COVID-19 pandemic. Journal of Economics and Finance, 46(4), 713–735. https://doi.org/10.1007/s12197-022-09591-x
Ullah, S., Majeed, A., & Popp, J. (2023). Determinants of bank’s efficiency in an emerging economy: A data envelopment analysis approach. PLOS ONE, 18(3), e0281663. https://doi.org/10.1371/journal.pone.0281663
Umar, M. (2014). Conceptual Exposition of the Effect of Inflation on Bank Performance. Journal of World Economic Research, 3(5), 55. https://doi.org/10.11648/j.jwer.20140305.11
Westberg, Peter. (2023, May 4). Efficiency Ratio: Assessing Operational Effectiveness. https://quartr.com/insights/investing/efficiency-ratio-assessing-operational-effectiveness
Xiazi, X., & Shabir, M. (2022). Coronavirus pandemic impact on bank performance. Frontiers in Psychology, 13, 1014009. https://doi.org/10.3389/fpsyg.2022.1014009