Title

Factors determining net interest margins in Australia: Domestic and foreign banks

Date of this Version

8-2007

Document Type

Journal Article

Publication Details

Interim status: Citation only.

Williams, B. (2007). Factors determining net interest margins in Australia: Domestic and foreign banks. Financial markets, institutions and instruments, 16(3), 145-165.

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2007 HERDC submission.

© Copyright Barry Williams, 2007. Journal compilation © Copyright New York University Salomon Center, 2007

Abstract

This study tests the application of the Ho and Saunders (1981) model of bank net interest margins (NIMs), and its subsequent developments, using Australian data. The core elements of this model apply in Australia. Bank market power is found to increase NIMs, consistent with McShane and Sharpe (1985), with evidence of bank buying market share and mispricing for risk. Operating costs also have an important role in determining NIMs, together with implied payments and management quality. Bank NIMs are found to have fallen over the study period.

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This document has been peer reviewed.