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Lack of impact of market structure (HERF) on NIM is unexpected, as FNB has the biggest market share at 31%. This bank could be expected to enjoy some degree of monopolistic market power.
ABSA results
All variables except average cost (C), are significant for the first-time regression. Quality of management (QM) is marginally significant with a t-statistic of 1.4316, compared to a critical value of 1.9432. Table 5 below indicates the significant variables for ABSA.
TABLE 5: ABSA REGRESSION RESULTS Multiple R = 0.9943
The negative coefficient for the opportunity cost variable (OC) contradicts the theory that the additional cost of holding reserves depends on the size of the reserves, thus a positive relationship between opportunity cost and net interest margin would be expected (Zhou & Wong, 2008: 44).
The negative coefficient for credit risk (R ) is debatable. Maudos & Guevara (2003: 13) and Flamini et al. (2009: 7) posited that the standard asset-pricing theory dictated that a positive relationship could be expected between NIM and credit risk. Banks faced with higher loan defaults will apply a risk premium that will reflect in higher NIMs. In contrast, Hanweck & Ryu (2005: 20) predicted a negative relationship based on the decreased credit quality of the borrower, which would increase the bank's credit risk and therefore also the value of the option to sell off the asset held by the bank as collateral.
c c SUMMARY AND CONCLUSIONS
This paper investigated selected variables of the determinants of NIMs of a sample of South African commercial banks. The analysis revealed that the Dealer Model as applied here explained the bank NIM environment in South Africa well. This was reflected by high goodness of fit (R² ) indicated in tables 2 to 5. However, the variables that affect the banks' NIM and the extent of the impact of the significant variables were not similar across the sample of banks.
Contrary to the expectation that competitiveness of the market structure has a significant impact on NIMs in Sub-Saharan Africa, the evidence of this research suggests that it does not have a significant impact on all banks. FNB's NIM is not influenced by the competitiveness of the market structure despite having the largest market share (31%). Standard Bank and ABSA with market shares of 26% and 23% respectively are affected significantly by the competitiveness of the market structure despite having lower market shares than FNB.
DETERMINATION OF NET INTEREST MARGIN DRIVERS FOR SOUTH AFRICAN BANKS 1038