An Empirical Study on Swedish Banks' Net Interest Margin Determinants

Sammanfattning

This thesis investigates the determinants of net interest margins (NIM) among Swedish banks during the period 2015–2024. Motivated by recent increases in bank profitability, the study addresses what factors explain Swedish banks’ net interest margins and if it’s mainly driven by the changes in the policy rate. Drawing on the dealership model by Ho and Saunders (1981) we develop an empirical panel data model to assess how bank factors, market structure and macroeconomic conditions influence bank margins. The analysis is based on a panel of 17 Swedish-domiciled banks by using annual data on financial metrics, risk measurement and macroeconomic indicators. The independent variables being firm size, Lerner index, credit risk, policy rate, inflation, GDP growth, yield spread and volatility. The results show that the bank-specific factors size and Lerner index along with macroeconomic variables policy rate and inflation significantly influence NIM. The findings suggest that while rising policy rates have played a central role in increasing margins in recent years, inflation, pricing power and structure also remain important explanatory factors. These insights contribute to a more nuanced understanding of bank profitability dynamics in a low-to-high-interest rate transition period and underline the importance of structural differences within the Swedish banking sector.