Non-interest income,profitability, and risk in banking industry: A cross-country analysis |
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| Affiliation: | 1. Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan;2. Department of Risk Management and Insurance, Feng Chia University, Taiwan;1. Department of Banking and Financial Management, University of Piraeus, Greece;2. Kingston University, United Kingdom;1. Faculty of Finance and Banking, Ton Duc Thang University, 19 Nguyen Huu Tho Street, Tan Phong Ward, District 7, Ho Chi Minh City, Viet Nam;2. Department of Finance, Feng Chia University, 100 Wenhwa Road, Seatwen, Taichung 407, Taiwan;3. Department of Finance, National Chung Hsing University, 145 Xinda Road, South Dist., Taichung 402, Taiwan;1. College of Business and Economics, Department of Finance and Economics, Qatar University, Qatar;2. College of Business Administration, University of Sharjah, Sharjah, United Arab Emirates;1. School of Management, Huazhong University of Science and Technology (HUST), Wuhan, 430074, Hubei, PR China;2. Department of Business Administration, Mawlana Bhashani Science and Technology University, Tangail, 1902, Bangladesh;3. International School, East China Jiao Tong University, Nanchang 330013, Jiangxi, PR China;1. Department of Banking and Finance, Monash University, PO Box 197, Caulfield East 3145, VIC, Australia;2. School of Economics, Finance and Marketing, RMIT University, Melbourne, VIC, Australia |
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| Abstract: | Using bank accounting data for 22 countries in Asia over the period 1995–2009, this article applies the dynamic panel generalized method of moments technique to investigate the impacts of non-interest income on profitability and risk for 967 individual banks. We find that non-interest activities of Asian banks reduce risk, but do not increase profitability on a broad sample basis. Specifically, when considering bank specialization and a country's income level, the results become complicated. Non-interest activities decrease profitability as well as increases risk for savings banks. The impact is also different for commercial, cooperative, and investment banks either by increasing profitability or reducing risk. On the other hand, non-interest activities raise risk for banks in high income countries, while increasing profitability or reducing risk for banks in middle and low income countries. Finally, our results reveal that the persistence of risk is greatly affected by bank specialization and a country's income level, as all risk variables present persistence from one year to the next. Our findings suggest that the type of bank specialization matters for the effect of diversifying revenue sources. |
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| Keywords: | Non-interest activities Bank risk Profitability Dynamic panel Asia |
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