Impact of internal and external factors on the net interest margin of banks in Indonesia
-
DOIhttp://dx.doi.org/10.21511/bbs.15(4).2020.09
-
Article InfoVolume 15 2020, Issue #4, pp. 99-107
- Cited by
- 1154 Views
-
1168 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study aims to assess the impact of bank-specific factors and macroeconomic indicators on the net interest margin (NIM) of commercial banks in Indonesia. Data from Indonesian commercial banks are used. Data are collected from the banks’ annual reports and the Financial Services Authority (OJK) for the period 2008 to 2018. A panel data regression model is used to estimate the effect of bank-specific and macroeconomic factors. The results prove that the variables of Non-Performing Loans (NPL), Loan to Deposit Ratio (LDR), Return on Assets (ROA), Interest Rate (SBI), and Exchange Rate (FOREX) affect NIM. The exchange rate variable has a predominant effect, while the NPL factor has a less strong influence on NIM. The empirical evidence from this research is important for commercial banks in Indonesia to improve operational efficiency through NIM performance. Internal and external factors of a bank should be subject of attention of bank managers.
- Keywords
-
JEL Classification (Paper profile tab)E44, E51, G21
-
References47
-
Tables1
-
Figures0
-
- Table 1. Determination of NIM
-
- Abid, L., Ouertani, M. N., & Ghorbel, S. Z. (2014). Macroeconomic and bank specific determinants of households non-performing loans in Tunisia: A dynamic panel data. Procedia Economics and Finance, 13, 58-68.
- Alper, D., & Anbar, A. (2011). Bank specific and macroeconomic determinants of commercial bank profitability: empirical evidence from Turkey. Business and Economics Research Journal, 2(2), 139-152.
- Angbazo, L. (1997). Commercial bank net interest margins, default risk, interest-rate risk and off-Balance sheet banking. Journal of Banking and Finance, 21(1), 55-87.
- 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(4), 1-20.
- Azeez, A. A. (2013). The determinants of net interest margins of commercial banks in Sri Lanka. University Journal of Commerce, 18(1), 1-16.
- Babalola, Y. A. (2012). The determinants of bank’s profitability in Nigeria. Journal of Money, Investment and Banking, 24, 6-16.
- Berger, A. N., Molyneux, P., & Wilson, J. O. S. (2020). Banks and the real economy: an assessment of the research. Journal of Corporate Finance, 62, 1-14.
- Brock, P, L., & Suarez, L, R. (2000). Understanding the behavior of bank spreads in Latin America. Journal of Development Economics, 63(1), 113-134.
- Carbó, S., & Rodríguez, F. (2007). The determinants of bank margins in European banking. Journal of Banking and Finance, 31(7), 2043-2063.
- Claessens, S., Coleman, N., & Donnelly, M. (2017). “Low-For-Long” interest rates and banks’ interest margins and profitability: cross-country evidence (International Finance Discussion Papers No. 1197).
- Claeys, S., & Vennet, V. R. (2008). Determinants of bank interest margins in Central and Eastern Europe: a comparison with the West. Economic Systems, 32(2), 197-216.
- De Bock, R., & Demyanets, A. (2012). Bank assets quality in emerging markets: determinants and spillovers (IMF Working Paper No. WP/12/71).
- Demirgüç, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), 379-408.
- Doliente, J. S. (2005). Determinants of bank net interest margins of Southeast Asia. Applied Financial Economics Letters, 1(1), 53-57.
- Endri, E., & Fathony, M. (2020). Determinants of firm’s value: evidence from financial industry. Management Science Letters, 10(1), 111-120.
- Endri, E., Sumarno, A., & Saragi, H. (2020). Analysis of financial performance: evidence from food and beverage companies in Indonesia. International Journal of Advanced Science and Technology, 29(5), 4199-4208.
- Endri. (2019). Determinant of Firm’s Value: Evidence of Manufacturing Sectors Listed In Indonesia Shariah Stock Index. International. Journal of Recent Technology and Engineering, 8(3), 3995-3999.
- Festic, M., & Beko, J. (2008). The Banking sector and macroeconomic performance in Central European economies. Czech Journal of Economics and Finance, 58(3-4), 131-151.
- Fungacova, Z., & Poghosyan, T. (2011). Determinants of bank interest margins in Russia: Does bank ownership matter? Economic Systems, 35(4), 481-495.
- Gounder, N., & Sharma, P. (2012). Determinants of bank net interest margins in Fiji, a small island developing state. Applied Financial Economics, 22(19), 1647-1654.
- Hamadi, H., & Awdeh, A. (2012). The determinants of bank net interest margin: evidence from the Lebanese banking sector. Journal of Money, Investment and Banking, 23(23), 85-98.
- Harahap, I. M., Septiania, I., & Endri, E. (2020). Effect of financial performance on firms’ value of cable companies in Indonesia. Accounting, 6(6), 1103-1110.
- Ho, T., & Saunders A. (1981). The determinants of banks interest margins: theory and empirical Evidence. Journal of Financial and Quantitative Analysis, 16(4), 581-600.
- Husni, K., Al-Abadi, M., & Hejazi, M. (2008). Determinants of commercial bank interest rate margins: evidence from Jordan. Jordan Journal of Business Administration, 4(4), 485-502.
- Kashyap, A. K., & Stein, J. C. (2000). What do a million observations on banks say about the transmission of monetary policy? American Economic Review, 90(3), 407-428.
- Khalil, A., & Farooq, U. (2019). Determinants of net interest margins in emerging markets: a generalized method of moments. Journal of Quantitative Methods, 3(1), 38-55.
- Khediri, K. B., & Khedhiri, H. B. (2011). Determinants of bank net interest margin in Tunisia: a panel data model. Applied Economics Letters, 18(13), 1267-1271.
- Kosmidou, K., Pasiouras, F., Doumpos, M., & Zopounidis, C. (2006). Assessing performance factors in the UK banking sector: a multicriteria methodology. Central European Journal of Operations Research, 14(1), 25-44.
- Lartey, V. C., Antwil, S., & Boadim, E. K. (2013). The Relationship between liquidity and profitability of listed banks in Ghana. International Journal of Business and Social Science, 4(3), 48-56.
- Lepetit, L., Nys, E., Rous, P., & Tarazi, A. (2008). The expansion of services in European banking: Implications for loan pricing and interest margins. Journal of Banking & Finance, 32(11), 2325-2335.
- Marinkovic, S., & Radovic, O. (2010). On the determinants of interest margin in transition banking: The case of Serbia. Managerial Finance, 36(12), 1028-1042.
- Maudos, J., & de Guevara, F. (2004). Factors explaining the interest margin in the banking sectors of the European Union. Journal of Banking and Finance, 28(9), 2259-2281.
- Maudos, J., & Solís, L. (2009). The determinants of net interest income in the Mexican banking system: An integrated model. Journal of Banking and Finance, 33(10), 1920-1931.
- Pasiouras, F., & Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European union. Research in International Business and Finance, 21(2), 222-237.
- Raharjo, P. G., Dedi, B. H., Adler., H. M., & Tubagus, N. A. M. (2014). Determinants of commercial bank’s Interest margin in Indonesia: an analysis of fixed effect panel regression. International Journal of Economics and Financial Issues, 4(2), 295-308.
- Saad, W., & El-Moussawi, C. (2012). The determinants of net interest margins of commercial banks in Lebanon. Journal of Money, Investment, and Banking, 23, 118-132.
- San, O. T., & Heng, T. B. (2013). Factors affecting the profitability of Malaysian commercial banks. African Journal of Business Management, 7(8), 649-660.
- Saunders, A., & Schumaker, L. (2000). The determinants of bank interest rate margins: an international study. Journal of International Money and Finance, 19(6), 813-832.
- Shahnia, C., Purnamasari, E. P., Hakim, L., & Endri, E. (2020). Determinant of profitability: Evidence from trading, service and investment companies in Indonesia. Accounting, 6(5), 787-794.
- Siddiqui, M. A. (2011). Towards determination of interest spread of commercial banks: Empirical evidences from Pakistan. African Journal of Business Management, 6(5), 1851-1862.
- Sugianto, S., Oemar, F., Hakim, L., & Endri, E (2020). Determinants of firm value in the banking sector: random effects model. International Journal of Innovation, Creativity and Change, 12(8), 208-218.
- Sunaryo, S., Santoni, A., Endri, E., & Harahap, M. N. (2020). Determinants of capital adequacy ratio for pension funds: a case study in Indonesia. International Journal of Financial Research, 11(4), 203-213.
- Tarus, D. K., Chekol, Y. B., & Mutwol, M. (2012). Determinants of net interest margins of commercial banks in Kenya: A panel study. Procedia Economics and Finance, 2, 199-208.
- Tennant, D., & Folawewo, A. (2009). Macroeconomic and market determinants of banking sector interest rate spreads: empirical evidence from low and Middle Income Countries. Applied Financial Economics, 19(6), 489-507.
- Ugur, A., & Erkus, H. (2010). Determinants of the net interest margins of banks in Turkey. Journal of Economic and Social Research, 12(2), 101-118.
- Werner, R. A. (2016). A lost century in economics: Three theories of banking and the conclusive evidence. International Review of Financial Analysis, 46, 361-379.
- Zhou, K., & Wong, M. C. S. (2008). The determinants of net interest margins of commercial banks in mainland China. Emerging Markets Finance Trade, 44(5), 41-53.