## _wp07134 - 2006. We find that bank-specific factors, such as bank size, liquidity, and market power, as ## Source details **Canonical URL:** [_wp07134 - 2006. We find that bank-specific factors, such as bank size, liquidity, and market power, as](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07134.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07134.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07134.pdf.json) --- ### Key findings - Bank-specific factors, such as bank size, liquidity, and market power, as well as the market structure within which banks operate, explain a large proportion of cross-bank, cross-time variation in spreads and margins. - The results suggest that there is a large potential to increase cost efficiency and competition in the banking system. ### Robustness tests: scope and alternative specifications - Alternative spread definition: - Spread2 (ex ante) = difference between weighted average lending and weighted average deposit rates. - Average ex post interest spread in the sample: 3.6 percent. - Net interest margin: 1.5 percent. - Average ex ante interest rate spread: 12.7 percent. - Results using Spread2 are consistent with ex post spread results: larger banks have lower spreads; greater deposit market share is positively and significantly associated with higher spreads. - In one specification the foreign ownership dummy is significant and negative for ex ante spreads (majority foreign-owned banks appear to have lower ex ante spreads), but this result is not robust across alternative specifications. - Treatment of outliers: - Re-estimated fixed-effects regressions excluding 3 of the 20 banks (the smallest banks that focus on fee-generating investment and private banking rather than deposit-taking and loan-making). - The main findings remain unchanged when these outliers are excluded. - Alternative liquidity measure: - Replaced current liquidity ratio with liquid assets ratio (liquid assets to total assets). - Both liquidity measures have negative coefficients as expected. - Liquid assets ratio is significant for margins but not for spreads (current liquidity was significant for both in baseline). - Additional sensitivity checks: - Other macroeconomic variables were tested; results were largely unchanged. - Inclusion of nonperforming loans and loan loss provisions in some specifications found no impact on spreads and margins (results available from authors upon request). ### Key robustness findings (numeric magnitudes preserved) - Bank size and market shares: - A one standard deviation increase in bank size → reduction of spreads by about 0.8 percentage points. - A one standard deviation increase in deposit market share → increase in spreads by 0.5 percentage points. - A one standard deviation increase in market share → reduction in margins by 0.4 percentage points (margin regressions). - Liquidity: - A one standard deviation increase in current liquidity → reduction in spreads by 0.3 percentage points. - Liquid assets ratio significant for margins but not for spreads in alternative specification. - Loan-portfolio composition: - A 10 percent higher loan portfolio share in agriculture → 0.4 percentage points higher spread relative to the average. - A 10 percent higher loan portfolio share in consumer loans → 0.1 percentage points higher spread relative to the average. - Concentration measures: - One standard deviation increase in the HHI for loans → 0.2 percentage point increase in spreads. - One standard deviation increase in the HHI for deposits → 0.1 percentage point increase in spreads. ### Robustness of foreign bank effects - Direct effect: - The foreign ownership dummy is generally insignificant in spread and margin regressions with bank fixed effects. - Indirect (spill-over) effects and bank origin: - Foreign bank participation in loans or deposits tends to lower margins (spill-over). - Interaction terms by origin: - Presence of the first-tier international (western) foreign bank interacting with foreign market share → negatively and significantly associated with interest spreads (spill-over lowers spreads). - Interaction between other types of foreign banks and foreign market share → positively and significantly associated with spreads (presence of these banks associated with higher spreads). - These origin-differentiated spill-over effects are robust in spread regressions; they are insignificant in some margin regressions. ### Robustness implications for interpretation - Main findings are robust to: - Alternative spread definition (ex ante vs ex post). - Exclusion of small-bank outliers. - Alternative liquidity measure (current liquidity vs liquid assets ratio). - Inclusion of additional macroeconomic variables. - Caveats: - Some coefficients (e.g., foreign ownership dummy negative for ex ante spread) are not robust across specifications. - Large contribution of time-invariant bank fixed effects (roughly 50 percent for spreads, 40 percent for margins) underscores persistent bank-specific heterogeneity and market segmentation not fully captured by time-varying controls. ### Selected regression highlights (preserved coefficients and significance) - Table 3 (Ex post Interest Spread / Net Interest Margin; Observations 303) - Overhead: coefficient 0.079 (std. 0.037) ** (column 1, Spread) - Bank size: coefficient -1.657 (std. 0.853) * (column 1, Spread) - Market share: coefficient 0.070 (std. 0.031) ** (column 1, Spread) - Capital adequacy: coefficient -0.011 (std. 0.003) *** (column 1, Spread) - ROA: coefficient 0.047 (std. 0.019) ** (column 1, Spread) - Foreign bank: coefficient -0.163 (std. 0.306) (column 1, Spread) - R-squared values: 0.284 (column 1, Spread), up to 0.648 (column 3) - Table 4 (Interest Rate Spread: Banking Structure and Macroeconomic Variables; Observations 303) - Bank size examples: -2.452 (std. 0.711) *** to -1.391 (various columns) - Market share deposits: coefficient 0.099 (std. 0.041) ** (column 1) - Liquidity: coefficient -0.003 (std. 0.001) *** (column 1) - HHI (loans): coefficient 0.003 (std. 0.002) ** (present in some specifications) - CR3 (loans): coefficient 7.016 (std. 3.069) ** (column with concentration ratio) - R-squared range: 0.567 to 0.632 across columns - Table 5 (Net Interest Margin; Observations 303) - Market share deposits: coefficient -0.084 (std. 0.017) *** (column 1) - CR3 (loans): coefficient -3.462 (std. 1.331) ** (column with CR3) - R-squared values around 0.741 to 0.786 - Table 6 (Robustness Tests; Observations 249–307) - Bank size examples: -7.585 (std. 2.331) *** (column 1, Spread2) - Market share deposits: coefficient 0.352 (std. 0.113) *** (column 1, Spread2) - Liquid assets ratio (LR1): coefficient -0.014 (std. 0.004) *** (column with LR1) - Foreign bank: coefficient -1.270 (std. -0.668) * (reported column) - R-squared examples: 0.462 (column 1) up to 0.820 (column 3) ### Key tables and summary statistics (selected exact figures) - Spread (Observations 307): Mean 3.63; Median 3.71; Std Dev. 1.10; Min. -0.10; Max. 7.70 - Margin (Observations 307): Mean 1.48; Median 1.40; Std Dev. 0.69; Min. -0.70; Max. 4.00 - Spread2 (Observations 2279): Mean 12.58; Median 12.7; Std Dev. 4.18; Min. -4.20; Max. 27.50 - Overhead (Observations 307): Mean 6.71; Median 5.54; Std Dev. 4.89; Min. 0.33; Max. 6.48 - Capital Adequacy (Observations 3095): Mean 8.28; Median 32.45; Std Dev. 1.24; Min. 11.23; Max. 26.50 - ROA (Observations 3102): Mean 2.02; Median 2.45; Std Dev. 5.41; Min. -38.62; Max. 4.20 - Current liquidity (Observations 3051): Mean 57.02; Median 115; Std Dev. 109.20; Min. 75.58; Max. 804.90 - Liquid assets ratio (Observations 3084): Mean 2.95; Median 39.8; Std Dev. 14.94; Min. 1.79; Max. 0.60 - Foreign bank share loans (Observations 310): Mean 56.80; Median 62.05; Std Dev. 10.63; Min. 38.36; Max. 8.50 - Foreign bank share deposits (Observations 310): Mean 69.87; Median 71.45; Std Dev. 6.95; Min. 58.47; Max. 8.30 - Herfindahl loans (Observations 167): Mean 98.75; Median 97.10; Std Dev. 54.70; Min. 69.67; Max. 864.20 - Herfindahl deposits (Observations 161): Mean 182.61; Median 1154.10; Std Dev. 104.97; Min. 1055.81; Max. 417.30 - Exchange rate (Observations 16): Mean -2.54; Median -1.65; Std Dev. 3.07; Min. -8.91; Max. 1.30 - Real GDP growth (Observations 16): Mean 12.46; Median 11.73; Std Dev. 3.44; Min. 7.51; Max. 8.40 - Inflation (Observations 16): Mean 3.57; Median 3.19; Std Dev. 3.22; Min. -1.05; Max. 8.76 - Real money market rate (Observations 16): Mean 1.57; Median 2.27; Std Dev. 3.76; Min. -4.57; Max. 11.20 ### Policy-relevant implications (as stated) - There is substantial scope to increase cost efficiency in the banking system. - There is substantial scope to increase competition in the banking system. *Source: _wp07134 - 2006. We find that bank-specific factors, such as bank size, liquidity, and market power, as* ### 2006. We find that bank-specific factors, such as bank size, liquidity, and market power, as ### _wp07134 - 2006. We find that bank-specific factors, such as bank size, liquidity, and market power, as ### Key Findings - Bank-specific factors, such as bank size, liquidity, and market power, as well as the market structure within which banks operate, explain a large proportion of cross-bank, cross-time variation in spreads and margins. - The results suggest that there is a large potential to increase cost efficiency and competition in the banking system. ### Scope and Focus - JEL Classification Numbers: E43, G21, C13 - Keywords: Banking system, interest rate spreads, Armenia - Author’s E-Mail Address: edablanorris@imf.org; hfloerkemeier@imf.org ### Structure of the analysis (as provided) - I. Introduction - II. Determinants of Interest Spreads: Related Literature - III. The Armenian Banking System - IV. Methodology and Data - V. Empirical Results - A. Basic Results - B. Market Structure and Macroeconomic Characteristics - C. Robustness - VI. Conclusions - References ### Empirical content and data coverage (explicit items listed) - Regional comparisons and year references include: 2005 and 2006. - Banking sector time ranges explicitly cited: 2002–06. - Figures (listed): - 1. Regional Comparison of Financial Sector Development, 2005 - 2. Regional Comparison of Interest Rate Spreads, 2005 - 3. Regional Comparison of Bank Productivity, 2005 - 4. Banking Sector Concentration, 2002–06 - 5. Bank Specialization in Loan Markets and Net Interest Margin, 2002–06 - 6. Regional Comparison of Determinants of Interest Rate Spreads, 2005 - 7. Performance and Structure of the Armenian Banking Sector, 2006 - Tables (listed): - 1. Summary Statistics - 2. Correlation Matrix - 3. Determinants of Interest Rate Spreads and Margins: Bank Characteristics - 4. Interest Rate Spread: Banking Structure and Macroeconomic Variables - 5. Net Interest Margin: Banking Structure and Macroeconomic Variables ### Implications and policy-relevant conclusions (as stated) - There is substantial scope to increase cost efficiency in the banking system. - There is substantial scope to increase competition in the banking system. *Source: _wp07134 - 2006. We find that bank-specific factors, such as bank size, liquidity, and market power, as* ### 6. Robustness Tests ................................................................................................ ### 6. Robustness Tests ### Summary of robustness checks and alternative specifications - Alternative spread definition: - Spread2 (ex ante) = difference between weighted average lending and weighted average deposit rates. - Average ex post interest spread in the sample: 3.6 percent. - Net interest margin: 1.5 percent. - Average ex ante interest rate spread: 12.7 percent. - Results using spread2 are consistent with ex post spread results: larger banks have lower spreads; greater deposit market share is positively and significantly associated with higher spreads. - In one specification the foreign ownership dummy is significant and negative for ex ante spreads (majority foreign-owned banks appear to have lower ex ante spreads), but this result is not robust across alternative specifications. - Treatment of outliers: - Re-estimated fixed-effects regressions excluding 3 of the 20 banks (the smallest banks that focus on fee-generating investment and private banking rather than deposit-taking and loan-making). - The main findings remain unchanged when these outliers are excluded. - Alternative liquidity measure: - Replaced current liquidity ratio with liquid assets ratio (liquid assets to total assets). - Both liquidity measures have negative coefficients as expected. - Liquid assets ratio is significant for margins but not for spreads (current liquidity was significant for both in baseline). - Additional sensitivity checks: - Other macroeconomic variables were tested; results were largely unchanged. - Inclusion of nonperforming loans and loan loss provisions in some specifications found no impact on spreads and margins (results available from authors upon request). ### Key robustness findings (numerical magnitudes preserved) - Bank size and market shares: - A one standard deviation increase in bank size → reduction of spreads by about 0.8 percentage points. - A one standard deviation increase in deposit market share → increase in spreads by 0.5 percentage points. - A one standard deviation increase in market share → reduction in margins by 0.4 percentage points (margin regressions). - Liquidity: - A one standard deviation increase in current liquidity → reduction in spreads by 0.3 percentage points. - Liquid assets ratio significant for margins but not for spreads in alternative specification. - Loan-portfolio composition: - A 10 percent higher loan portfolio share in agriculture → 0.4 percentage points higher spread relative to the average. - A 10 percent higher loan portfolio share in consumer loans → 0.1 percentage points higher spread relative to the average. - Concentration measures: - One standard deviation increase in the HHI for loans → 0.2 percentage point increase in spreads. - One standard deviation increase in the HHI for deposits → 0.1 percentage point increase in spreads. ### Robustness of results on foreign bank effects - Direct effect: - The foreign ownership dummy is generally insignificant in spread and margin regressions with bank fixed effects. - Indirect (spill-over) effects and bank origin: - Foreign bank participation in loans or deposits tends to lower margins (spill-over). - Interaction terms by origin: - Presence of the first-tier international (western) foreign bank interacting with foreign market share → negatively and significantly associated with interest spreads (spill-over lowers spreads). - Interaction between other types of foreign banks and foreign market share → positively and significantly associated with spreads (presence of these banks associated with higher spreads). - These origin-differentiated spill-over effects are robust in spread regressions; they are insignificant in some margin regressions. ### Robustness implications for interpretation - Main findings are robust to: - Alternative spread definition (ex ante vs ex post). - Exclusion of small-bank outliers. - Alternative liquidity measure (current liquidity vs liquid assets ratio). - Inclusion of additional macroeconomic variables. - Caveats: - Some coefficients (e.g., foreign ownership dummy negative for ex ante spread) are not robust across specifications. - Large contribution of time-invariant bank fixed effects (roughly 50 percent for spreads, 40 percent for margins) underscores persistent bank-specific heterogeneity and market segmentation that is not fully captured by time-varying controls. *Source: _wp07134 - 6. Robustness Tests ................................................................................................* ### References ### _wp07134 - References ### References - Barajas, A., R. Steiner, and N. Salazar, 1999, “Interest Spreads in Banking in Colombia, 1974-96,” IMF Staff Papers, Vol. 46, 196-224. - Beck, T., and H. Hesse, 2006, “Bank Efficiency, Ownership and Market Structure. Why are Interest Rate Spreads so High in Uganda?” World Bank Working Paper (Washington: World Bank). - Berger, A., L. Klapper, and G. Udell, 2001, “The Ability of Banks to Lend to Informationally Opaque Small Businesses,” Journal of Banking and Finance, 25, Vol. 12, 2127–2167. - Bonin, J., I. Hasan, and P. Wachtel, 2005, “Bank Performance, Efficiency and Ownership in Transition Countries,” Journal of Banking and Finance, Vol. 29, 31–53. - Bossone, B., P. Honohan, and M. Long, 2002, “Policy for Small Financial Systems,” in: Caprio, G., P. Honohan, and D. Vittas (eds.): “Financial Sector Policy for Developing Countries: A Reader,” (Washington: World Bank). - Brock, P., and H. Franken, 2002, “Bank Interest Margins Meet Interest Rate Spreads: How good is Balance Sheet Data for Analyzing the Cost of Financial Intermediation?” mimeo. - Chirwa, E., and M. Mlachila, 2004, “Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi,” IMF Staff Papers, Vol. 51, 96-122. - Claessens, S., A. Demirgüç-Kunt, and H. Huizinga, 2001, ”How Does Foreign Entry Affect Domestic Banking Markets?” Journal of Banking and Finance, Vol. 25, 891–911. - Claessens, S. and L. Laeven, 2004, “What Drives Bank Competition? Some International Evidence,” Journal of Money, Credit and Banking, Vol. 36, No. 3 (Part 2), 563–583. - Dell’Ariccia, G. and R. Marquez, 2004, “Information and Bank Credit Allocation,” Journal of Financial Economics, Vol. 72, No. 1, 185–214. - Demirgüç-Kunt, A. and H. Huizinga, 1999, “Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence,” World Bank Economic Review, Vol. 13, No. 2, 379–408. - Demirgüç-Kunt, A., L. Laeven, and R. Levine, 2004, “Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation,” Journal of Money, Credit and Banking, Vol. 36, No. 3, 593–622. - Detragiache, E., T. Tressel, and P. Gupta, 2006, “Foreign Banks in Poor Countries: Theory and Evidence,” IMF Working Paper WP/06/18, (Washington: International Monetary Fund). - Drakos, K., 2003, “Assessing the Success of Reform in Transition Banking 10 Years Later: An Interest Margin Analysis,” Journal of Policy Modeling 25, 891–911. - Floerkemeier, H., 2006, “Armenia’s Financial System: Why is it Small, and What Reforms are Needed?” IMF Selected Issues Papers, SM/06/434 (Washington: International Monetary Fund). - Fries, S., D. Never, and P. Seabright, 2002, “Bank Performance in Transition Countries,” EBRD, Economic Bank for Reconstruction and Development, London. - Fuentes, R. and C. Maquieria, 2000, “Institutional Arrangements to Determine Loan Repayment in Chile,” IADB Working Paper R-374. - Galindo, A. and M. Miller, 2001, “Can Credit Registries Reduce Credit Constraints? Empirical Evidence on the Role of Credit Registries in Firm Investment Decisions,” mimeo, www.iadb.org/res/seminars?events.htm - Gelos, G., 2006, “Banking Spreads in Latin America,” IMF Working Paper WP/06/44, (Washington: International Monetary Fund). - IMF, 2006, “Financial Soundness Indicators,” (Washington: International Monetary Fund). - Jappelli, T. and M. Pagano, 2002, “Information Sharing, Lending and Defaults: Cross-Country Evidence,” Journal of Banking and Finance, 26, 2017–2045. - Levine, R., N. Loayza, and T. Beck, 2000, “Financial Intermediation and Growth: Causality and Causes,” Journal of Monetary Economics, 46, 31–77. - Martinez Peria, M. and A. Mody, 2004, “How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America,” Journal of Money, Credit, and Banking, Vol. 36, No. 3 (June, Part 2), 511–537. - Miller, M.J., 2003, “Credit Reporting Systems around the Globe: The State of the Art in Public Credit Registries and Private Credit Reporting Firms,” in: M. J. Miller (ed.): Credit Reporting Systems and the International Economy, 25–80, (Washington: World Bank). - Mkrtchyan, A., 2004, “The Evolution of Competition in Banking in a Transition Economy: An Application of the Panzar-Rosse Model to Armenia,” The European Journal of Comparative Economics, 2, No. 1, 67–82. - Padilla, A. J. and M. Pagano, 1997, “Endogenous Communication Among Lenders and Entrepreneurial Incentives,” The Review of Financial Studies 10, Winter, 205–236. - Panzar, C. J. and J. N. Ross, 1987, “Testing for ‘Monopoly’ Equilibrium,” The Journal of Industrial Economics, 35, 443–456. - Pinheiro, A. C. and A. Moura, 2003, “Segmentation and the Use of Information in Brazilian Credit Markets,” in: M. J. Miller (ed.): Credit Reporting Systems and the International Economy 335–396, (Washington: World Bank). - Ross, K. and A. Giustiniani, 2006, “Financial Intermediation in FYR Macedonia,” IMF Selected Issues SM/06/345, (Washington: International Monetary Fund). - Stiglitz, J. and A. Weiss, 1981, “Credit Rationing in Markets with Imperfect Information,” American Economic Review, 71, 393–410. - Van Horen, N., 2007, “Foreign Banking in Developing Countries; Origin Matters,” Emerging Markets Review, 8, 81-105. ### Key Tables and Summary Statistics (selected highlights from Table 1) - Spread (Observations 307): Mean 3.63; Median 3.71; Std Dev. 1.10; Min. -0.10; Max. 7.70 - Margin (Observations 307): Mean 1.48; Median 1.40; Std Dev. 0.69; Min. -0.70; Max. 4.00 - Spread2 (Observations 2279): Mean 12.58; Median 12.7; Std Dev. 4.18; Min. -4.20; Max. 27.50 - Overhead (Observations 307): Mean 6.71; Median 5.54; Std Dev. 4.89; Min. 0.33; Max. 6.48 - Capital Adequacy (Observations 3095): Mean 8.28; Median 32.45; Std Dev. 1.24; Min. 11.23; Max. 26.50 - ROA (Observations 3102): Mean 2.02; Median 2.45; Std Dev. 5.41; Min. -38.62; Max. 4.20 - Current liquidity (Observations 3051): Mean 57.02; Median 115; Std Dev. 109.20; Min. 75.58; Max. 804.90 - Liquid assets ratio (Observations 3084): Mean 2.95; Median 39.8; Std Dev. 14.94; Min. 1.79; Max. 0.60 - Foreign bank share loans (Observations 310): Mean 56.80; Median 62.05; Std Dev. 10.63; Min. 38.36; Max. 8.50 - Foreign bank share deposits (Observations 310): Mean 69.87; Median 71.45; Std Dev. 6.95; Min. 58.47; Max. 8.30 - Herfindahl loans (Observations 167): Mean 98.75; Median 97.10; Std Dev. 54.70; Min. 69.67; Max. 864.20 - Herfindahl deposits (Observations 161): Mean 182.61; Median 1154.10; Std Dev. 104.97; Min. 1055.81; Max. 417.30 - Exchange rate (Observations 16): Mean -2.54; Median -1.65; Std Dev. 3.07; Min. -8.91; Max. 1.30 - Real GDP growth (Observations 16): Mean 12.46; Median 11.73; Std Dev. 3.44; Min. 7.51; Max. 8.40 - Inflation (Observations 16): Mean 3.57; Median 3.19; Std Dev. 3.22; Min. -1.05; Max. 8.76 - Real money market rate (Observations 16): Mean 1.57; Median 2.27; Std Dev. 3.76; Min. -4.57; Max. 11.20 ### Correlations (selected) - Correlation between Spread and Margin: 0.527 - Correlation between Spread and Spread2: 0.444 - Correlation between Capital adequacy and Spread: -0.325 - Correlation between Foreign dummy and Spread: -0.247 - Correlation between Foreign bank share loans and Foreign bank share deposits: 0.965 - Correlation between Foreign bank share loans and Herfindahl loans: 0.908 - Observations for correlation matrix: 303 (first block), 16 (second block) ### Regression Results — Determinants of Interest Rate Spreads and Margins (selected significant coefficients) - Table 3 (Ex post Interest Spread / Net Interest Margin; Observations 303) - Overhead: coefficient 0.079 (std. 0.037) ** (column 1, Spread) - Bank size: coefficient -1.657 (std. 0.853) * (column 1, Spread) - Market share: coefficient 0.070 (std. 0.031) ** (column 1, Spread) - Capital adequacy: coefficient -0.011 (std. 0.003) *** (column 1, Spread) - ROA: coefficient 0.047 (std. 0.019) ** (column 1, Spread) - Liquidity: coefficient 0.000 (std. 0.001) (column 1, Spread) - Foreign bank: coefficient -0.163 (std. 0.306) (column 1, Spread) - R-squared values: 0.284 (column 1, Spread), up to 0.648 (column 3) - Fixed effects: NO in some specifications; YES in others - Note: Quarterly and annual time dummies are included but not reported. Clustered standard errors in parenthesis. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively. - Table 4 (Interest Rate Spread: Banking Structure and Macroeconomic Variables; Observations 303) - Bank size: coefficients range from -2.452 to -1.391 across columns; e.g., -2.452 (std. 0.711) *** (column 1) - Market share deposits: coefficient 0.099 (std. 0.041) ** (column 1) - Capital adequacy: coefficient -0.007 (std. 0.005) * (column 1) - Liquidity: coefficient -0.003 (std. 0.001) *** (column 1) - Origin 1: coefficient -0.061 (std. 0.009) *** (column with origin variable) - HHI (loans): coefficient 0.003 (std. 0.002) ** (present in some specifications) - CR3 (loans): coefficient 7.016 (std. 3.069) ** (column with concentration ratio) - Constant examples: 21.520 (std. 5.335) *** (column 1) - Fixed effects: YES across reported specifications; Time dummies included in many specifications (see notes) - R-squared range: 0.567 to 0.632 across columns - Table 5 (Net Interest Margin: Banking Structure and Macroeconomic Variables; Observations 303) - Market share deposits: coefficient -0.084 (std. 0.017) *** (column 1) - Capital adequacy: coefficient -0.003 (std. 0.002) * (column 1) - ROA: coefficient 0.025 (std. 0.011) ** (column 1) - Liquidity: coefficient -0.001 (std. 0.000) ** (column 1) - CR3 (loans): coefficient -3.462 (std. 1.331) ** (column with CR3) - Exchange rate: coefficient 0.017 (std. 0.007) ** (present in a specification) - RGDP: coefficient 0.017 (std. 0.007) ** (present in a specification) - Fixed effects: YES; R-squared values around 0.741 to 0.786 across specifications - Table 6 (Robustness Tests; various dependent variables, Observations 249–307) - Bank size: coefficients notably large and negative in some specifications, e.g., -7.585 (std. 2.331) *** (column 1, Spread2) - Market share deposits: coefficient 0.352 (std. 0.113) *** (column 1, Spread2) - Liquid assets ratio (LR1): coefficient -0.014 (std. 0.004) *** (column with LR1) - Foreign bank: coefficient -1.270 (std. -0.668) * (in a reported column) - R-squared examples: 0.462 (column 1) up to 0.820 (column 3) - Additional notes from regression tables: - Clustered standard errors are reported in parenthesis. - ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively. - Time dummies are included in many specifications; omitted in some due to multicollinearity. ### Appendix: Variable Definitions (as provided) - Spread: Difference between total interest income received in quarter divided by average loans for the quarter and total interest expenses in quarter divided by average deposits for the quarter. - Margin: Difference between total interest income and expenses over average assets - Spread2: Difference between the weighted average lending rate and the weighted average deposit rate for each bank and each quarter where the weights are the relative amounts of deposits or loans contracted at specific interest rates. - Overhead: Administrative costs over total assets - Non-interest income: Non-interest operating income divided by total assets - Bank size: Log of total bank assets - Market share deposits: Bank deposits divided by total commercial bank deposits in economy - Capital adequacy: Ratio of regulatory capital to risk-weighted assets - ROA: Profits over total assets - Current liquidity: Liquid assets over demand liabilities - Portfolio (industry, agriculture, consumer): Bank loans to sector over its total loan portfolio - Foreign: Equals 1 for foreign-owned bank; 0 otherwise - Foreign bank participation loans/deposits: Share of loans/deposits in the hands of foreign banks - Herfindahl index loans/deposits: Sum of squared loan/deposit market shares of banks - Concentration ratio (3) loans/deposits: Share of three largest banks in loans/deposits - Market share (industry, agriculture, consumer): Bank loans to sector divided by total commercial bank loans to sector - GDP growth: Quarterly real GDP growth - Inflation: Quarterly change of the CPI index - Real money market rate: Quarterly money market rate adjusted for inflation - Change in the exchange rate: Quarterly change in Dram per US$ *Content based on the PDF file: _wp07134 - References* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07134.pdf_