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DETERMINATION OF NET INTEREST MARGIN DRIVERS FOR SOUTH AFRICAN BANKS
55 ABSTRACT
The perception exists that bank net interest margins (NIM) in Sub-Saharan Africa and South Africa in particular, are high compared to other regions. This could be an indication of inefficiencies in Sub-Saharan African banks. This paper investigates the four largest commercial banks in South Africa to identify the relevance and significance of factors affecting NIM in commercial banking in South Africa. The Classical Linear Regression Model (CLRM), together with the Ordinary Least Squares (OLS) data estimating technique were used to determine net interest margins drivers, based on Ho and Saunders' Dealer model. Average operating costs, degree of risk aversion, credit risk exposure and size of operations were the major factors that influenced NIM in the sample of South African banks. Market power, interest rate volatility and the opportunity cost of holding reserves were also relevant factors, though less significant. Quality of management does not appear to have a significant impact in determining NIM in South African banks.
KEYWORDS Net interest margins, Commercial banks, South Africa
Mr K Mudzamiri MUNICIPAL INFRASTRUCTURE SUPPORT AGENT