Analysis of Net Interest Margin (spread) of Commercial Banks with Emphasis on Competitiveness and Credit Risk

Given the importance of the money market in Iran, this study tries to examine effective factors on net interest margin with an emphasis on market structure and credit risk. Research methodology is based on econometric panel data from 13 commercial banks in the years of 2006-2013. The findings emerged from data analysis show that the average of net interest margin is 4.1 percent at commercial banks. Also market concentration index confirms competitive structure at money market. Credit risk calculations also show that 1.15 percent of bank facilities and receivables has become to past due receivables, Deferred and doubtful. In accordance with the results of the data analysis, the findings of estimation model also confirms the existence of imperfect competition in the money market. Other finding indicates a positive influence of credit risk and administrative costs on net interest margin. However, the bank facilities do not have a significant effect on net interest margin. Because of the large size of government and consequently the dependence of monetary policy to fiscal policy, bank facilities are binding directly or indirectly.