The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries

Journal article


Nisar, S., Peng, K., Wang, S. and Ashraf, B. (2018). The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries. International Journal of Financial Studies. 6 (2), p. 40. https://doi.org/10.3390/ijfs6020040
AuthorsNisar, S., Peng, K., Wang, S. and Ashraf, B.
Abstract

This paper is a contribution to the ongoing debate on the benefits and drawbacks of bank revenue diversification. Revenue diversification may benefit banks if diversified activities are inherently less risky and possess high returns, while it may hurt banks if diversified activities are more risky and have low returns. Analyzing a panel dataset of 200 commercial banks from all South Asian countries, we found that overall revenue diversification into non-interest income has a positive impact on the profitability and stability of South Asian commercial banks. We further observed that different types of non-interest income-generating activities have different impacts on bank performance and stability. While fees and commission incomes have a negative impact on the profitability and stability of South Asian commercial banks, other non-interest income has a positive impact. Our results imply that banks can benefit from revenue diversification if they diversify into specific types of non-interest income-generating activities. Our findings are robust and relevant to the use of alternative measures of revenue diversification, profitability and stability.

Year2018
JournalInternational Journal of Financial Studies
Journal citation6 (2), p. 40
PublisherMDPI
ISSN2227-7072
Digital Object Identifier (DOI)https://doi.org/10.3390/ijfs6020040
Web address (URL)http://www.mdpi.com/2227-7072/6/2/40
Publication dates
Online03 Apr 2018
Publication process dates
Accepted29 Mar 2018
Deposited02 Nov 2022
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Open
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