Navigating crisis: bank diversification into non-traditional activities as a sustainable strategy during the COVID-19 pandemic

Miroslav Mateev and Golam Mostafa Khan

Journal of Sustainable Finance & Investment, 2026, vol. 16, issue 2, 255-291

Abstract: This study highlights the role of bank diversification as a sustainable strategy for strengthening resilience in developing economies, particularly across the Middle East and North Africa (MENA) region, during times of crisis. The study investigates the impact of market competitive dynamics on banks’ choices regarding non-interest diversification based on a sample of 554 banks from 20 MENA countries. Employing two-stage least squares (2SLS) and Generalized Method of Moments (GMM) approaches, we address endogeneity concerns in panel data. The results indicate a positive but nonlinear relationship between market competition and bank diversification. Banks with lower market power tend to focus more on income diversification, whereas banks with higher market power rely more heavily on traditional interest-based products. Moreover, bank efficiency plays a significant moderating role in enhancing bank diversification, with notable differences between Islamic and conventional banks. During the COVID-19 crisis, MENA banks diversified into non-traditional activities to offset their credit losses.

Date: 2026
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DOI: 10.1080/20430795.2026.2617652

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