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| Moch. Doddy Ariefianto and Triasesiarta Nur |
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| ''Decomposing bank net interest margin: A dynamic stochastic frontier and dominance analysis'' |
| ( 2025, Vol. 45 No.3 ) |
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| This study aims to disentangle and quantify the time-varying inefficiency component of the Net Interest Margin (NIM), separating it from other contributors such as core factors, control factors, and bank-specific heterogeneity. To achieve this, a two-step empirical design was employed, combining a dynamic stochastic frontier model with dominance analysis. The procedure was replicated across various subsamples—based on ownership structure, bank scale, and the COVID-19 period—as robustness checks. The results show that time-varying inefficiency plays the most significant role in explaining NIM, accounting for approximately 47.1%, while core factors contribute around 31.2%. Only modest variations were found across subsamples. This study offers an innovative methodological approach and concrete findings on one of the most critical banking metrics, with meaningful policy implications. |
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| Keywords: Net Interest Margin, Banks, Dynamic Stochastic Frontier Analysis, Dominance Analysis. |
JEL: G2 - Financial Institutions and Services: General
C5 - Econometric Modeling: General |
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| Manuscript Received : Jul 03 2025 | | Manuscript Accepted : Sep 30 2025 |
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