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Why Did EU Banks Change Their Business Models in Last Years and What Was the Impact of Net Fee and Commission Income on Their Performance?

Karolina Vozkova ()
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Karolina Vozkova: Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic

No 2018/04, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper contributes to the current literature dealing with the drivers of bank business model changes by analyzing the relationship between fee and commission income share and banks’ performance in terms of profitability, risk and risk-adjusted profitability in the European Union. We apply System Generalized Method of Moments on a unique data set of 329 EU banks in 2005-2014 period. We did not find any diversification benefits by increasing the fee income share based on which we conclude that increase in fee income share observed during last years in EU banks was driven mainly by external factors like increased competition rather than by internal reasons. As expected higher reliance on equity financing and better quality of provided loans enhance banks’ performance. Finally, bank business strategy and macroeconomic factors are crucial in the determination of banks’ performance.

Keywords: bank; fee and commission income; profitability; risk (search for similar items in EconPapers)
JEL-codes: C23 G21 L25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec and nep-eff
Date: 2018-02, Revised 2018-02
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