The Determinants of Bank Interest Margins: A Short-term Funding Perspective

Abstract

The net interest margins (NIM) is one of the key metrics for Banks, and for those who want to evaluate the performance of a bank’s investments. In this paper, the determinants of net interest margins of China’s financial institutions are investigated, while taking into account the effects of short-term funding and the presence of foreign banks. By distinguishing different shareholding structure and comparing the banks’ net interest margins before and after the banking liberalization, we find that both short-term funding and foreign bank presence have negative impacts on the net interest margins of Chinese domestic banks. The banking sector after the financial liberalization, especially the national wide banks, has better ability to manage the financial stress. The China Construction Banks(CCBs) and Credit Cooperatives suffer higher interest margin decline than State-Owned commercial Banks(SOBs) and Joint Stock Banks(JSBs). The national wide banks need to accelerate the business diversification and increase the intermediary revenue.