The Determinants of Bank Net Interest Margin: Evidence from the Lebanese Banking Sector

This study analyses the determinants of commercial bank interest margins in Lebanon using bank-specific, industry specific, monetary policy, and macroeconomic variables for the period 1996-2009. The empirical results indicate that interest rate margins are shaped differently between domestic and foreign banks. For instance, domestic bank size, liquidity, efficiency, and to a lower extent, capitalisation and credit risk, have a negative impact on interest margins. The same impact was captured by concentration, dollarization, and to a lower extent, by economic growth. On the other hand, the growth rate of deposits, lending, inflation, central bank discount rate, national saving, domestic investment, and to a lower degree, the interbank rate, all have a positive impact on net interest margins. For foreign banks, we found that size, liquidity, capitalisation, and credit risk, do not show a significant impact. Another interesting remark is that the host market macroeconomic conditions, industry characteristics, central bank discount rate, and interbank rate, have much weaker impact for foreign bank interest margins.