Factors affecting net interest margin of ASEAN banks

As one of the key financial intermediaries, banks play a significant role as providers of credits and liquidity to the Asean economies. Banks are able to execute this economic role efficiently provided they are profitable. The issue is: What affects banks' net interest margins in this region? This paper investigates six factors affecting net interest margin (NIM) of conimercial banlts in Malaysia, Thailand, Japan, Korea, Australia and New Zealand over 1998 to 2002. Although the banks are operating in different economies: the investigation reveals that loan to deposit ratio significantly affects the banks' NIM in all six Asean countries. Operating expenses to total assets and leverage emerge as the next significant factors affecting NIM of banks in most of the Asean countries. The findings also show that adjusted R-squared for Australian, Thailand and New Zealand banks falls within 38-42 percent range while R-squared for Malaysia, Korea and Japan falls within 15-37 percent range. The implications of the results are discussed in the paper