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Bank Risk and Non-Interest Income Activities in the Indonesian Banking Industry

Wahyu Hidayat (), Makoto Kakinaka and Hiroaki Miyamoto
Additional contact information
Wahyu Hidayat: Bank Indonesia, http://www.bi.go.id/

No EMS_2012_03, Working Papers from Research Institute, International University of Japan

Abstract: The recent trend of product diversification in the Indonesian banking industry underscores the importance of non-interest income activities. This study examines the relationship between product diversification and bank risk over the period of 2002-2008. Our analysis shows clear evidence that the effect of product diversification on bank risk depends highly on the bank's asset size. Specifically, the degree of product diversification is negatively associated with bank risk for small-sized banks. Conversely, the degree of product diversification is positively related to bank risk for large-sized banks. This finding suggests that deregulation encouraging banks to become more involved in non-traditional activities may have an adverse effect on the overall banking system where large-sized banks are playing a significant role in Indonesia.

Keywords: Bank risk; Product diversification; Non-interest income activities (search for similar items in EconPapers)
Pages: 25 pages
Date: 2012-04
New Economics Papers: this item is included in nep-ban, nep-rmg and nep-sea
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https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2012_03.pdf First version, 2012 (application/pdf)

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