Determinants of Net Interest Margins in Vietnamese Commercial Banks: A Bayesian Approach

Abstract

Net interest margin (NIM) is considered the most important factor in assessing a bank's performance. The primary purpose of this study was to evaluate the most important factors that influence the Net Interest Margin (NIM) in the commercial banks operating in Viet Nam using the Bayesian linear regression method for 24 commercial banks covering the study period 2011–2023. The results show that profitability (ROA), operational cost to operating income ratio (EFE), loan-to-deposit ratio (LDR), non-performing loan ratio (NPL), inflation rate (INF) and GDP growth (GDP) have a significant positive impact on NIM of banks. Meanwhile, bank size (SIZE) and liquidity (LIQ) are two factors that negatively affect NIM. The study suggests that banks should develop reasonable business strategies, maintain an appropriate level of liquidity to avoid waste and mitigate risks that could affect profitability.