Threshold effects of net interest margin on bank sustainable profitability in emerging economies

Abstract While sustainable bank profitability is critical for emerging economies, prior literature predominantly relies on linear models or arbitrary size classifications to evaluate the impact of Net Interest Margin (NIM), leaving scale-dependent structural breakpoints unexplored. Addressing this gap, this study introduces an endogenous panel threshold framework to identify a data-driven critical bank size threshold within the context of Southeast Asian banking. This research makes key methodological and empirical contributions by providing fresh evidence that crossing this critical asset scale amplifies—rather than reverses—the profitability benefits of core intermediation margins. To achieve this, we utilize a panel threshold regression model on a dataset of 58 Southeast Asian commercial banks spanning 2013 to 2025. The baseline estimates successfully identify a specific total asset threshold at USD 1.3 billion (SIZE = 14.0794). The findings indicate that below this threshold, the estimated NIM coefficient is 0.2608, whereas above the threshold it rises to 0.4014. This demonstrates that once banks achieve this critical scale, they unlock economies of scale that enhance the efficiency of interest income generation. Consequently, the study offers fresh insights for policymakers, suggesting that government support and banking consolidation strategies should explicitly target scale optimization. Furthermore, bank managers are advised to prioritize asset growth and cost reduction to effectively leverage the asymmetric benefits of NIM, thereby fostering sustainable profitability and robust economic credit flows.