Determinants of Bank Interest Margins in Sub-Saharan Africa

January 31, 2013

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Format: Chicago

Calixte Ahokpossi. Determinants of Bank Interest Margins in Sub-Saharan Africa, (USA: International Monetary Fund, 2013) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Financial intermediation is low in sub-Saharan Africa (SSA) compared to other regions of the world. This paper examines the determinants of bank interest margins using a sample of 456 banks in 41 SSA countries. The results show that market concentration is positively associated with interest margins, but the impact depends on the level of efficiency of each bank. In particular, compared to inefficient banks, efficient ones increase their margins more in concentrated markets. This indicates that policies that promote competition and reduce market concentration would help lower interest margins in SSA. The results also show that bank-specific factors such as credit risk, liquidity risk, and bank equity are important determinants of interest margins. Finally, interest margins are sensitive to inflation, but not to economic growth or public or foreign ownership. There are regional differences within SSA regarding the level of interest margins even after controlling for other factors.

Subject: Banking, Commercial banks, Credit risk, Financial institutions, Financial regulation and supervision, Foreign banks, Liquidity risk, State-owned banks

Keywords: Bank, Bank activity, Bank behavior, Bank characteristic, Bank data, Bank inefficiency, Bank margin, Bank size, Banks interest margins, Center, Commercial banks, Credit risk, East Africa, Foreign banks, Interest margin, Liquidity risk, Southern Africa, State-owned banks, Sub-Saharan Africa, West Africa, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/034
Stock No:

WPIEA2013034
ISBN:

9781475551136
ISSN:

1018-5941

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