Financial intermediation costs in low income countries: The role of regulatory, institutional, and macroeconomic factors

Poghosyan, Tigran

doi:10.1016/j.ecosys.2012.07.003

Cited by 72 publications

(97 citation statements)

References 17 publications

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“…These findings don't support the view [11][12][13]66] that higher amount of expensive capital in overall bank capital structure would force banks to increase intermediation costs. In contrast, these results support the view [67] that well capitalized banks due to having lower default risk can benefit from lower funding costs and would not always charge higher intermediation cost.…”

Section: The Determinants Of the Banks' Cost Of Intermediationcontrasting

confidence: 54%

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Zheng

Rahman

Begum

et al. 2017

JRFM

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Abstract:In response to the recent global financial crisis, the regulatory authorities in many countries have imposed stringent capital requirements in the form of the BASEL III Accord to ensure financial stability. On the other hand, bankers have criticized new regulation on the ground that it would enhance the cost of funds for bank borrowers and deteriorate the bank profitability. In this study, we examine the impact of capital requirements on the cost of financial intermediation and bank profitability using a panel dataset of 32 Bangladeshi banks over the period from 2000 to 2015. By employing a dynamic panel generalized method of moments (GMM) estimator, we find robust evidence that higher bank regulatory capital ratios reduce the cost of financial intermediation and increase bank profitability. The results hold when we use equity to total assets ratio as an alternative measure of bank capital. We also observe that switching from BASEL I to BASEL II has no measurable impact on the cost of financial intermediation and bank profitability in Bangladesh. In the empirical analysis, we further observe that higher bank management and cost efficiencies are associated with the lower cost of financial intermediation and higher bank profitability. These results have important implications for bank regulators, academicians, and bankers.

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Section: The Determinants Of the Banks' Cost Of Intermediationcontrasting

confidence: 54%

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Zheng

Rahman

Begum

et al. 2017

JRFM

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“…Khawaja and Din (2007) identify positive relationship between liquidity and interest spread in Pakistan. They attribute this relationship to less appetite for more deposits of a bank with surplus liquidity and hence low returns on deposits and higher interest spread while Poghosyan (2012) argues that higher liquidity implies higher opportunity of holding extra liquidity which in turn raises NIMs. Doliente (2005), and Gounder and Sharma (2012) identify negative relation between liquidity and NIMs in Southeast Asia and Fiji respectively.…”

Section: Choice and Description Of Variablesmentioning

confidence: 97%

“…Persistently high interest margins are reflective of higher intermediation costs to the society and might be indicative of systematic problems like concentrated banking industry, perceived market and credit risks, bank unsoundness, scale diseconomies, high operating costs, unfavourable institutional environment and distortions in markets (Poghosyan 2012). Evidence on impact of net interest margins (NIMs) on economy is well-pronounced and documented in literature.…”

Section: Introductionmentioning

confidence: 95%

Banking Industry Concentration and Net Interest Margins (Nims) in Pakistan

Hussain

2013

Journal of Business Economics and Management

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This paper uses bank level data of 26 commercial banks for the period 2001-2010 to explore determinants of net interest margins of commercial banks of Pakistan. Based on results of this study, past net interest margins, bank soundness, operating cost, industry concentration, relative market share, inflation, real depreciation and industrial growth have statistically significant and positive impact while diversification, change in bank size, lagged liquidity, stock market development have dampening effects on net interest margins. However, impact of ownership, GDP and credit market development is statistically insignificant. Our regression results suggest that stock market development as means of alternative source of finance contributes to reduction in net interest margins while the impact of banking sector development on breaking banking cartels and bringing net interest margins down had been insignificant. Exchange rate adjustments, rate of inflation and growth of the industry also cannot be ignored in management of net interest margins. Incentives for bank executives and managers to ensure efficiency in operating costs, reduction in the premium charged for bank soundness, diversification of bank activities and passing on the scale efficiencies to both depositors and borrowers can also play role to bring interest margins down to accelerate investment and growth in the country.

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“…Using low income countries and emerging economies banking systems data, Poghosyan (2013) found that interest margins in low-income markets are higher compared to emerging markets. The results indicate the main factors influencing the costs of financial intermediation in low income countries are concentrated market structure, institutional quality, fraction of bank entries denied, credit risk, risk aversion and bank size.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Lower margins reflect an efficient and competitive banking system operating with lower intermediation costs (Barajas et al, 1999;Saunders and Schumacher, 2000). Furthermore, higher margins are considered as an impediment for financial deepening (Poghosyan, 2013). Therefore, it is important for Islamic banks to provide intermediation services at lower costs.…”

Section: Introductionmentioning

confidence: 99%

Determinants of Islamic Banks’ Margins in Asian Countries

Malim

Masron

Pitchay

2017

JIF

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This paper examines the determinants of margins in Islamic banks for the period 2005-2013. Specifically, we apply pooled, static and dynamic panel regressions on 76 Islamic banks in Asian countries. The results suggest the main factors that influence the margins of Islamic banks are numerous including bank size, default risk, overhead cost, capitalization, market concentration, GDP growth and inflation. It is evident that enhancing macroeconomic policies, risk management capabilities and operational efficiency could help in lowering the margins.

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Financial intermediation costs in low income countries: The role of regulatory, institutional, and macroeconomic factors

Cited by 72 publications

References 17 publications

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Capital Regulation, the Cost of Financial Intermediation and Bank Profitability: Evidence from Bangladesh

Banking Industry Concentration and Net Interest Margins (Nims) in Pakistan

Determinants of Islamic Banks’ Margins in Asian Countries

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