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Is Bank Income Diversification Beneficial? Evidence from an Emerging Economy

Céline Meslier-Crouzille (), Ruth Tacneng and Amine Tarazi
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Céline Meslier-Crouzille: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

Authors registered in the RePEc Author Service: Celine Meslier Crouzille ()

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Abstract: This paper examines the impact of bank revenue diversification on the performance of banks in an emerging economy. Using a unique dataset with detailed information on non- interest income, our findings show that, conversely to studies on Western economies, a shift towards non-interest activities increases bank profits and risk-adjusted profits particularly when they are more involved in trading in government securities. Our results also indicate that foreign banks benefit more from such a shift than their domestic counterparts. Moreover, we account for the institutional and regulatory environment advocating loans to SMEs and find that higher involvement in non-interest activities is only beneficial for banks with low exposures to SMEs. Our findings have important policy implications in terms of achieving optimal diversification and lower risk exposure, which might conflict with policies aiming to promote SME lending.

Date: 2013
New Economics Papers: this item is included in nep-ban
Note: View the original document on HAL open archive server: https://hal-unilim.archives-ouvertes.fr/hal-00918574
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Journal Article: Is bank income diversification beneficial? Evidence from an emerging economy (2014) Downloads
Working Paper: Is Bank Income Diversification Beneficial? Evidence from an Emerging Economy (2014)
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