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Determinants of bank net interest margins in Fiji, a small island developing state

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  • Neelesh Gounder
  • Parmendra Sharma

Abstract

This article investigates the determinants of Net Interest Margins (NIM) of banks in Fiji, a Small Island Developing State (SIDS) in the South Pacific, over the period 2000--2010. Based mainly on the Ho and Saunders’ (1981) dealership model and extensions thereto, this study uses a number of panel data estimation techniques to control for possible heterogeneity across banks and various assumptions about errors. Consistent with the theoretical model, NIM has a positive association with implicit interest payment, operating cost, market power and credit risk, and a negative association with the quality of management and liquidity risk. However, the association with bank capital and opportunity cost of required reserves do not conform to expectations. Policy implications are discussed.

Suggested Citation

  • Neelesh Gounder & Parmendra Sharma, 2012. "Determinants of bank net interest margins in Fiji, a small island developing state," Applied Financial Economics, Taylor & Francis Journals, vol. 22(19), pages 1647-1654, October.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:19:p:1647-1654
    DOI: 10.1080/09603107.2012.674202
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    1. Parmendra Sharma & Mark Brimble, "undated". "2012-11 Sustainable development in the small states of the South Pacific: Toward a corporate social responsibility for international banks in small economies," Discussion Papers in Finance finance:201211, Griffith University, Department of Accounting, Finance and Economics.
    2. Parmendra Sharma & Neelesh Gounder, 2011. "Supply Side Obstacles to Financing the Private Sector: Empirical Evidence from a Small Island Developing State," Discussion Papers in Finance finance:201101, Griffith University, Department of Accounting, Finance and Economics.
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    Cited by:

    1. Habib-ur Rahman & Muhammad Waqas Yousaf & Nageena Tabassum, 2020. "Bank-Specific and Macroeconomic Determinants of Profitability: A Revisit of Pakistani Banking Sector under Dynamic Panel Data Approach," IJFS, MDPI, vol. 8(3), pages 1-19, July.
    2. Raghu Raman & Walter Leal Filho & Hector Martin & Suparna Ray & Dayana Das & Prema Nedungadi, 2024. "Exploring Sustainable Development Goal Research Trajectories in Small Island Developing States," Sustainability, MDPI, vol. 16(17), pages 1-25, August.
    3. Salleh, Maisyarah & Possumah, Bayu Taufiq & Ahmat, Nizam, 2018. "Net Profit Margin Determinants of Islamic Subsidiaries of Conventional Banks in Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(2), pages 163-173.
    4. Murad Khan & Abdul Jalil, 2020. "Determinants of Interest Margin in Pakistan: A Panel Data Analysis," Economies, MDPI, vol. 8(2), pages 1-14, March.
    5. Neelesh Gounder, 2020. "Fiji economic survey: Low growth the new normal?," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 7(2), pages 145-157, May.
    6. Shasnil Avinesh Chand & Ronald Ravinesh Kumar & Peter Josef Stauvermann, 2023. "Determinants of Non-Performing Loans in a Small Island Economy of Fiji: Accounting for COVID-19, Bank-Type, and Globalisation," JRFM, MDPI, vol. 16(10), pages 1-35, October.
    7. Ijaz Hussain, 2014. "Banking industry concentration and net interest margins (NIMs) in Pakistan," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 15(2), pages 384-402, April.
    8. Abdul Latif Alhassan & Michael Lawer Tetteh & Freeman Owusu Brobbey, 2016. "Market power, efficiency and bank profitability: evidence from Ghana," Economic Change and Restructuring, Springer, vol. 49(1), pages 71-93, February.
    9. Pamuji Gesang Raharjo & Dedi Budiman Hakim & Adler Hayman Manurung & Tubagus N.A. Maulana, 2014. "The Determinant of Commercial Banks' Interest Margin in Indonesia: An Analysis of Fixed Effect Panel Regression," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 295-308.

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