Montenegro’s financial intermediation has declined since independence, with domestic credit to the private sector falling from 86.5% of GDP in 2008 to 46.4% in 2024. Net interest margins (NIMs) remain high, ranking among the highest in the Western Balkans. This paper analyzes the determinants of NIMs using a bank-level dataset for 2013–25. Key findings are: larger banks exhibit lower NIMs due to economies of scale, diversification, and market power; higher asset quality is associated with narrower margins, highlighting effective credit risk management; greater operational efficiency correlates with lower NIMs, emphasizing cost control and managerial effectiveness. Policy implications include encouraging banking sector consolidation, strengthening credit risk management, and promoting operational efficiency improvements.
