Ognjen Radović

On the determinants of interest margin in transition banking: the case of Serbia

Purpose - The purpose of this paper is to study the link between, on one hand the interest margin of the bank, and the determinants of the interest margin on the other. The basic importance of bank interest margin or spread (BIS), arises from the fact that it presents an indicator of a banks profitability as well as the cost of financial intermediation imposed on both its depositors and debtors. Design/methodology/approach - To test the relationship using multiple linear regressions with lagged variables (OLS – ordinary least squares). In addition using correlation analysis as well as bootstrapping model was necessary to overcome the issue of unknown statistical distribution of small data samples. Findings - The quantitative study reveals proposed positive and significant correlation between bank interest margins and proxies of interest-rate risk, negative correlation with risk averseness, positive but slightly lower correlation with credit risk variable, and finally, not so strong influence of foreign bank entry. Social implications - Having implemented the methodology, the paper draws some policy recommendations. To make interest margin optimal, authorities should redesign existing system of deposit protection together with building institutional credit guarantees and thus enable relevant information to flow freely amongst participants, i.e. to establish official information sharing arrangements for bank industry. Originality/value - This is the first econometric study of the bank interest spread determinants for the Serbian banking industry.

Bank net interest margin related to risk, ownership and size: an exploratory study of the Serbian banking industry

The article empirically explores bank-specific, industry-specific and macroeconomic determinants of the net interest margin (NIM) in the Serbian banking industry. The baseline regression results suggest that banks with an above-average equity-to-asset ratio tend to report higher NIMs. The chosen proxy for loan default risk also appears statistically significant, but contrary to what is suggested by theory, indicates that the relation between default risk and the NIM is inverse. Amongst industry-specific determinants, only the proxy for concentration appears significant, as expected, and carries the prefix envisaged. Despite its narrow focus, this article does not ignore other possible determinants of the bank NIM. The type of bank ownership, as well as size effects, are explored further in order to gain insights into the influence of those variables on the NIM. The approach we follow does not include proxies for such determinants, but rather involves testing differences in regression results for banks that belong to different groups (proposed by Angbazo, 1997). Where size is taken into account, results indicate that large banks are better able to insulate books against interest rate risk by managing liabilities, while the superior performance of foreign banks could be attributed to their conservative lending practices and better access to foreign finance.

Determinants of Currency Substitution in Southeast European Countries

Abstract Currency substitution is widespread in less developed countries. Since it increases financial vulnerability and limits the effectiveness of monetary policy, it is often in the focus of scientists and experts. In this paper, we analyze the importance of euroization determinants in Serbia and neighboring countries - Albania, Bosnia and Herzegovina, FYR Macedonia, Romania and Croatia for the period 2003-2014. We examine the impact of domestic inflation, nominal exchange rate of the domestic currency against the euro, interest rate spread on domestic and foreign currency, foreign currency inflow in the form of foreign direct investments and exports, as well as the euroization of banks’financial resources on the degree of loan euroization. The results obtained by multiple regression panel methods confirm the statistical significance and assumed direction of the influence of all analyzed variables except inflation and current account balance.

What Drives a Local Currency Away from Banking Markets? Some Southeast Europe Insights

The chapter explores determinants of currency substitution on a sample of countries of Southeast Europe that follow a variety of exchange rate regimes within different monetary frameworks. In the sampled countries, the level of currency substitution remained rather high despite years-long efforts to address the issue. Although the substituting currency (euro) does not undermine the substituted ones in their role of means of payment, it is the pervasive use of foreign currency as the store of value, or choice of currency for financial assets and liabilities, that becomes a persistent feature of all economies in question. Foreign currency loans continue to dominate local loan markets, and broader money aggregates to a large extent consist of foreign currency deposits (financial euroization). The presence of financial euroization makes interest rate channel of monetary transmission inefficient. Moreover, the pervasive level of financial euroization leaves an economy dangerously exposed to external shocks. This is why understanding roots and mechanisms of financial euroization becomes an increasingly important policy issue. We employed multiple panel regression models feed by the official annual data that cover the last decade. In this study, the choice of explanatory variables is firstly based on the so-called portfolio view which considers economic agents’ choice between the classes of domestic and foreign assets driven by risk–return relationship. We have tested the significance of a set of variables pointed out by two international parity conditions, i.e., uncovered interest rate parity and purchasing power parity. The common variable for those international parity relations is exchange rate expectations, or future path of exchange rate. We also included different proxies for external fragility. Those proxies may shape public view of growth and stability prospects, and further on explain puzzling disparities of the international parity relationships, calculated based on current level of exchange rate. Designed that way, econometric models are able to trace wrong policy choices or unsustainable economic policy mix.

APPLYING THE MOODLE PLATFORM IN ONLINE STUDENT SELF-ASSESSMENT

Abstract Taking into consideration the importance of information and communications technology in higher education both as part of the teaching and grading process, but also the limitations in its application in higher education in the Republic of Serbia, this paper outlines the possibilities which the Moodle platform offers for the definition and use of online self-assessment tests and quizzes in the preparation and simulation of the entrance exam for the Faculty of Economics of the University of Niš. To indicate the importance of egrading for the increase in the effectiveness of learning, the paper analyses the number of created accounts and the number of visits, while a statistical analysis of the candidates′ results on the simulated entrance exam, from 2014 to 2016, was used to test the hypothesis on the significance of formative assessment for effective learning. The obtained t-test results indicate that formative assessment in this specific instance contributes to the improvement of the candidates’ learning process and that the application of such a means of student self-assessment in other areas of study would significantly contribute to the increase in the effectiveness of learning. On the other hand, statistical analyses of individual responses to questions represent a significant source of feedback for teachers, which can be used for the purpose of redefining tests.

Market Volatility and Foreign Exchange Intervention

This paper explores unilateral interventions by National Bank of Serbia on RSD/EUR market, conducted over the period from 2004 to 2010 inclusive. We have employed a Markov-switching model that describes the time-varying nature of the exchange rate volatility. The changing nature of volatility may arise due to the process of information arrivals or being liquidity driven, but can also be a consequence of interventions. We found the probability of switching between high-volatility and low volatility states conditioned upon the intervention. The regime switching model proved to be able to indicate correctly the ex ante identified structural breaks that came from intervention policy. Moreover, our study raises doubts that the central bank intervenes also in response of detrimental past exchange rate trends rather than solely in response to excess volatility.

Testing Uncovered Interest Parity for Structural Breaks: A Developing Country Perspective

This article is a single-country empirical study of uncovered interest parity. Uncovered interest parity (hereafter UIP) is a non-arbitrary condition well-known and widely tested in international finance. This test of UIP is based on high-frequency data. The most promising parts of the evidence are the EGARCH analysis of statistical properties of time series of deviations from UIP, and the Markov Switching model. EGARCH (1,1) delivers a model able to predict future volatility of the tested variable. Moreover, the model also describes the time-varying nature of volatility itself. The changing nature of volatility may arise due to the process of information arrivals or being liquidity driven, but can also be a consequence of some structural breaks. Namely, the time series remains homoscedastic in the short-term while heteroscedasticity appears in long-term horizons. The regime switching model is further employed in order to test if the smoothed probabilities along the sample reflect the main events through which the economy evolved over time. The model proved to be able to indicate correctly the ex-ante identified structural break that came from crisis incident, but failed to differ between pre- and post-liberalisation periods.