Banking Sector Competition in the Panzar-Rosse Framework and Net Interest Margins: An Empirical Analysis Using the General Method of Moments

This paper provides empirical evidence on the determinants of net interest margins in Central, Eastern, and Southeastern European countries (CESEE) during the period 1999–2009, with a particular focus on the relationship between banking sector competition and net interest margins. Using countrylevel Panzar-Rosse H-statistic estimates as a measure of competition, and the General Method of Moments, it has been determined that banking sector competition had a negative impact on net interest margins. In order to check for consistency, alternative measures of competition, such as the Lerner index and the Herfindahl-Hirschman index, have also been used. The results appear consistent and suggest that higher market power is associated with higher interest margins. Arben Mustafa University “Kadri Zeka”, Faculty of Economics, Gjilan, Republic of Kosovo arben.mustafa@uni-gjilan.net Valentin Toçi University of Prishtina “Hasan Prishtina”, Faculty of Economics, Prishtina, Republic of Kosovo valentintoci@gmail.com CroEconSur Vol. 20 No. 1 June 2018 pp. 5-36 Received: March 10, 2017 Accepted: December 6, 2017 Research Article doi:10.15179/ces.20.1.1