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Determinants of Interest Margins in Colombia

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  • Dairo Estrada
  • Esteban Gómez
  • Inés Orozco

Abstract

This paper analyzes the determinants of interest margins in the Colombian Financial System. Based on the model by Ho and Saun- ders (1981), interest margins are modelled as a function of the pure spread and bank-speci¯c institutional imperfections using quarterly data for the period 1994:IV-2005:III. Additionally, the pure spread is estimated as a function of market power and interest rate volatility. Results indicate that interest margins are mainly a®ected by credit institutions' ine±ciency and to a lesser extent by credit risk exposure and market power. This implies that public policies should be ori- ented towards creating the necessary market conditions for banks to enhance their e±ciency.

Suggested Citation

  • Dairo Estrada & Esteban Gómez & Inés Orozco, 2006. "Determinants of Interest Margins in Colombia," Borradores de Economia 393, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:393
    DOI: 10.32468/be.393
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    Cited by:

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    2. Ignacio Lozano & Norberto Rodríguez, 2015. "Una Nota Sobre el Impacto del Gravamen a las Transacciones Financieras en los Márgenes Bancarios en Colombia," Borradores de Economia 13876, Banco de la Republica.
    3. Ignacio Lozano-Espitia & Hernando Vargas-Herrera & Norberto Rodríguez-Niño, 2017. "Financial transaction tax and banking margins: An empirical note for Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 35(83), pages 154-160, June.
    4. Norman Zakiyy & Kamal Halili Hassan, 2016. "The Management Process at the Pretrial Stage under Malaysian Rules of Court 2012," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 2, ejes_v2_i.
    5. Papavangjeli, Meri & Leka, Eralda, 2016. "Përcaktuesit mikro- dhe makroekonomikë të marzhit neto të interesave në sistemin bankar shqiptar (2002-2014) [Micro- and macroeconomic determinants of net interest margin in the Albanian banking sy," MPRA Paper 78604, University Library of Munich, Germany, revised Jun 2016.
    6. International Monetary Fund, 2013. "Peru: Selected Issues Paper," IMF Staff Country Reports 2013/046, International Monetary Fund.
    7. Vera Ogeh Lassey Fiador & Mohammed Amidu, 2021. "Inclusive finance, bank pricing behaviour, and livelihood activities of households in Ghana," SN Business & Economics, Springer, vol. 1(1), pages 1-29, January.
    8. Chortareas, Georgios E. & Garza-García, Jesús G. & Girardone, Claudia, 2012. "Competition, efficiency and interest rate margins in Latin American banking," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 93-103.

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    More about this item

    Keywords

    Interest Margins; Competition; Credit Risk; Interest Rate Risk.;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L89 - Industrial Organization - - Industry Studies: Services - - - Other
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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