Journal Article

Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence

Ash Demirgüç-Kunt and Harry Huizinga

in The World Bank Economic Review

Published on behalf of World Bank

Volume 13, issue 2, pages 379-408
Published in print May 1999 | ISSN: 0258-6770
Published online May 1999 | e-ISSN: 1564-698X | DOI: http://dx.doi.org/10.1093/wber/13.2.379
Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence

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Using bank-level data for 80 countries in the years 1988–95, this article shows that differences in interest margins and bank profitability reflect a variety of determinants: bank characteristics, macroeconomic conditions, explicit and implicit bank taxation, deposit insurance regulation, overall financial structure, and underlying legal and institutional indicators. A larger ratio of bank assets to gross domestic product and a lower market concentration ratio lead to lower margins and profits, controlling for differences in bank activity, leverage, and the macroeconomic environment. Foreign banks have higher margins and profits than domestic banks in developing countries, while the opposite holds in industrial countries. Also, there is evidence that the corporate tax burden is fully passed onto bank customers, while higher reserve requirements are not, especially in developing countries.

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Subjects: Development Planning and Policy

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