Banks’ Net Interest Margin in the 2000s: A Macro-Accounting international perspective

This paper re-examines the determinants of Net Interest Margin (NIM) in the banking industries of 15 developed and emerging economies. It presents three main contributions with respect to previous studies: first, we analyze the determinants of NIM in the years leading to the 2008 financial crisis; second, we account for the role of different accounting standards across countries; third, we use multi-way cluster estimation methodologies which control for cross-sectional and time-series dependence in macroeconomic and banking variables. We find that the introduction of International Financial Reporting Standards (IFRSs) contributed to lower NIM variations unexplained by standard accounting variables. Interest rate volatility is found to be positively and strongly related to NIM dynamics, whereas inflation risk is often found to be a relevant driver of NIM cross-country differences.

► In this paper we examine the determinants of bank Net Interest Margins (NIM) across 15 developing and developed countries since 1999 to 2008.
► Bank (NIM) in developed countries are substantially lower than emerging economies.
► Interest rate volatility is positively and strongly related to NIM across countries and time.
► Inflation risk is often a variable related to NIM cross-country differences.
► International Financial Reporting Standards contribute to lower NIM variations unexplained by standard accounting variables.