1. Abstract
The study researches which certain bank-specific, macroeconomic factors and the factors reflecting
the financial structure impact net interest margin for the Nordic banks in Lithuania most and how.
For the empirical analysis of the unbalanced panel data and the period 2003 to 2010 third quarter the
random effects model is used. The results suggest that non-interest income, economic growth, market
shares in deposits and loans’ markets are significant determinants of net interest margin for the Nordic
banks. The later two variables are found to have positive and negative impact on net interest margin
respectively. This suggests that the examined banks demanded compensation by offering lower rates
on deposits while charging lower rates on loans. Such strategy may have been enhanced by the cheap
funds provided by the parent banks. The results suggest that an increasing operational efficiency of
the banks also contributed positively towards charging more attractive loan interest rates to the
customers. Furthermore, it is found that higher concentration in the deposits’ market positively affects
net interest margin for the examined banks. This suggests lack of competition in this particular
market. It is concluded that the Nordic banks need to pay most attention towards expanding their
income sources and improving efficiency whereas the later should not be used for aggressive pricing
policy.
Key words: bank, net interest margin, profitability, Lithuania