Determinants of commercial bank interest margins and profitability: some international evidence

Abstract

Using bank level data for 80 countries in the 1988-1995 period, this paper shows that differences in interest margins and bank profitability reflect a variety of determinants: bank characteristics, macroeconomic conditions, explicit and implicit bank taxation, deposit insurance regulation, overall financial structure, and several underlying legal and institutional indicators. Controlling for differences in bank activity, leverage, and the macroeconomic environment, we find that a larger bank asset to GDP ratio and a lower market concentration ratio lead to lower margins and profits. Foreign banks have higher margins and profits compared to domestic banks in developing countries, while the opposite holds in developed countries. Also, there is evidence that the corporate tax burden is fully passed on to bank customers.

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@inproceedings{DemirgKunt1998DeterminantsOC, title={Determinants of commercial bank interest margins and profitability: some international evidence}, author={Asli Demirg{\"{u}ç-Kunt and Harry Huizinga and Jerry Caprio and George G . Kaufman and Mary M. Shirley}, year={1998} }