The Determinants of Net Interest Margin in the Ghanaian Banking Industry

This study investigates the determinants of net interest margin and the role of the financial crisis in explaining net interest margin (NIM) in the banking industry in Ghana. Further, we assess the sensitivity of our results to the measure of credit risk. We observe a sharp drop in NIM and an increase in bad debt growth during the 2007?2009 financial crisis in Ghana?s banking sector. Depending on the definition of credit risk, we observe marginal differences in the magnitude and significance of the determinants of NIM. Generally, NIM is explained by bank-specific, industry and macroeconomic factors. We find risk aversion, operating cost, inflation rate and previous year?s GDP growth to be robust drivers of NIM.