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Financial Intermediation Costs in Low-Income Countries: The Role of Regulatory, Institutional, and Macroeconomic Factors
Author:
Mr. Tigran Poghosyan
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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 140
Language:
English
Publication Date:
01 May 2012
DOI:
https://doi.org/10.5089/9781475503937.001
ISBN:
9781475503937
ISSN:
1018-5941
Pages:
35
Keywords:
WP; interest margin; LICS bank; bank characteristic; dependent variable; Net Interest Margins; Banks; Low Income Countries; Emerging Economies; entry application; margin determinant; bank efficiency; intermediation service; Credit risk; Reserve requirements; Loan loss provisions; Inflation; Competition; Western Hemisphere
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We analyze factors driving persistently higher financial intermediation costs in low-income countries (LICs) relative to emerging market (EMs) country comparators. Using the net interest margin as a proxy for financial intermediation costs at the bank level, we find that within LICs a substantial part of the variation in interest margins can be explained by bank-specific factors: margins tend to increase with higher riskiness of credit portfolio, lower bank capitalization, and smaller bank size. Overall, we find that concentrated market structures and lack of competition in LICs banking systems and institutional weaknesses constitute the key impediments preventing financial intermediation costs from declining. Our results provide strong evidence that policies aimed at fostering banking competition and strengthening institutional frameworks can reduce intermediation costs in LICs.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund