Determinants of Bank Interest Margins in the Caucasus and Central Asia

In this paper, we use a bank-level panel dataset to investigate the determinants of bankinterest margins in the Caucasus and Central Asia (CCA) over the period 1998–2013. Weapply the dealership model of Ho and Saunders (1981) and its extensions to assess the extent to which high spreads of banks in the CCA can be related to bank-specific variables, tocompetition, and to macroeconomic factors. We find that interest spreads are affected byoperating cost, credit risk, liquidity risk, bank size, bank diversification, banking sectorcompetition, and macroeconomic policies; but the impact depends on the country.