The Determinants of Banks' Net Interest Margin in Indonesia: A Dynamic Approach

23 Pages Posted: 25 Jan 2012

See all articles by Louvti Rodney Sidabalok

Louvti Rodney Sidabalok

Central Bank of Indonesia

Viverita Viverita

Department of Management Faculty of Economics and Business Universitas Indonesia

Date Written: January 23, 2012

Abstract

This study analyzes the net interest margin and its determinants of the Indonesian banks during the period of 2003-2009 using a dynamic panel data methodology. Results from the study show consistent findings with previous studies. It is found that there was high and persistence net interest margin of the Indonesian banks. The evidence also reveals that high net interest margin caused by a wide pure spread, bank's specific factors, as well as market power. Furthermore, it is also found that the previous NIM is the main and continual determinant of net interest margin. However, this study failed to confirm the pro-cyclical behavior in the Indonesian banks.

Keywords: net interest margin, market power, dynamic panel data

JEL Classification: C33, G21, L11

Suggested Citation

Sidabalok, Louvti Rodney and Viverita, Viverita, The Determinants of Banks' Net Interest Margin in Indonesia: A Dynamic Approach (January 23, 2012). Universitas Indonesia, Graduate School of Management Research Paper No. 13-02, Available at SSRN: https://ssrn.com/abstract=1990175 or http://dx.doi.org/10.2139/ssrn.1990175

Louvti Rodney Sidabalok

Central Bank of Indonesia ( email )

Indonesia

Viverita Viverita (Contact Author)

Department of Management Faculty of Economics and Business Universitas Indonesia ( email )

Depok, West Java 16424
Indonesia
+62217270164 (Phone)
+622178849155 (Fax)