Non-interest income, profitability, and risk in banking industry: A cross-country analysis

Chien-Chiang Lee (), Shih-Jui Yang and Chi-Hung Chang

The North American Journal of Economics and Finance, 2014, vol. 27, issue C, 48-67

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.

Keywords: Non-interest activities; Bank risk; Profitability; Dynamic panel; Asia (search for similar items in EconPapers)
JEL-codes: C23 G21 O16 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:27:y:2014:i:c:p:48-67

DOI: 10.1016/j.najef.2013.11.002

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