Determinants of net interest margin in the Albanian banking system

Research on banking system efficiency has always been a debatable and interesting issue. This paper analyses net interest margin as a measure of efficiency for the banks which operate in Albanian banking system and the main focus is the identification of the factors that affect this indicator. According to the estimations carried out for the Albanian banking system, the results show that the net interest margin is positively affected by the interest rate volatility (mainly of euribor, domestic currency’s and slightly of the libor rate), by the level of operating expenses which have had an increasing tendency and by the amount of banks’ reserves in the Central B ank. Other factors that affect the net interest margin are the level of bank capitalization, which should be interpreted with caution; net commission incomes which are negatively related to the dependent variable implying that these two indicators are substitutes of each-other; the effectiveness of management work; credit risk and the concentration level in terms of loans.