Determinants of commercial bank interest margins and profitability: Some international evidence

Using bank-level data for 80 countries in the years 1988-95, this article s hows that differences in interest margins and bank profitability reflect a variety of determinants: bank characteristics, macroeconomic conditions, ex plicit and implicit bank taxation, deposit insurance regulation, overall fi nancial structure, and underlying legal and institutional indicators. A lar ger ratio of bank assets to gross domestic product and a lower market conce ntration ratio lead to lower margins and profits, controlling for differenc es in bank activity, leverage, and the macroeconomic environment. Foreign b anks have higher margins and profits than domestic banks in der,eloping cou ntries, while the opposite holds in industrial countries. Also, there is ev idence that the corporate tax burden is fully passed onto bank customers, w hile higher reserve requirements are not, especially in developing countrie s.