Bank net interest margin related to risk, ownership and size: an exploratory study of the Serbian banking industry

The article empirically explores bank-specific, industry-specific and macroeconomic determinants of the net interest margin (NIM) in the Serbian banking industry. The baseline regression results suggest that banks with an above-average equity-to-asset ratio tend to report higher NIMs. The chosen proxy for loan default risk also appears statistically significant, but contrary to what is suggested by theory, indicates that the relation between default risk and the NIM is inverse. Amongst industry-specific determinants, only the proxy for concentration appears significant, as expected, and carries the prefix envisaged. Despite its narrow focus, this article does not ignore other possible determinants of the bank NIM. The type of bank ownership, as well as size effects, are explored further in order to gain insights into the influence of those variables on the NIM. The approach we follow does not include proxies for such determinants, but rather involves testing differences in regression results for banks that belong to different groups (proposed by Angbazo, 1997). Where size is taken into account, results indicate that large banks are better able to insulate books against interest rate risk by managing liabilities, while the superior performance of foreign banks could be attributed to their conservative lending practices and better access to foreign finance.