Does bank diversification heterogeneously affect performance and risk-taking in ASEAN emerging economies?

Moudud‐Ul‐Huq, Syed; Ashraf, Badar Nadeem; Gupta, Anupam Das; Zheng, Chao

doi:10.1016/j.ribaf.2018.04.007

Cited by 82 publications

(82 citation statements)

References 42 publications

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“…In Table 1, we can see from the results of Models (1a) that non-financing income (NFI) has a negative and significant relationship with risk (DER), which is consistent with [5,7,9,16,18]. The result shows that the increase of non-financing income will decrease the risk level so that banking service activity must be maximized.…”

Section: Resultssupporting

confidence: 66%

“…So far, a number of studies have been conducted by several researchers from international and Indonesia. The most recent research is conducted by Moudud-Ul-Huq, et al [16] support that the diversification of income benefits the bank by improving performance and reducing risks. The study [19] shows that non-interest income as a whole is reducing bank risk in South Asia.…”

Section: Literature Reviewmentioning

confidence: 99%

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Do service activity impact on the risk of Indonesian banking industry?

Friantina¹,

Ruhadi²,

Syarief³

2018

MATEC Web Conf.

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The Indonesian banking industry has developed technology innovation will provide financial services to generate income. The purpose of this paper is to compare the service activity and to explore the effect of the service activity on risk in Islamic and conventional banks. By analyzing 12 Islamic banks and 38 conventional banks in Indonesia during the period from 2015 to 2017, we use Structural Equation Modelling (SEM) with path analysis and multiple group analysis. The result shows that the service activity of Islamic banks appears to be more variable than conventional banks. The risk level of Islamic banks is more stable than conventional banks. For Islamic banks, non-financing income has a significant negative effect on risk, commission income and trading income have a significant positive effect on risk, and other non-financing income has no effect on risk. However, no significant effect has been observed between non-interest income, commission income, trading income, other non-interest income and risk level in conventional banks. This finding indicates that the combination of funding activities, lending activities, and service activities allows Islamic banks to obtain the diversification income till reduce risks. For conventional banks, diversification in activities contributes to the higher volatility of bank revenue.

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Section: Resultssupporting

confidence: 66%

Section: Literature Reviewmentioning

confidence: 99%

Do service activity impact on the risk of Indonesian banking industry?

Friantina¹,

Ruhadi²,

Syarief³

2018

MATEC Web Conf.

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“…Similarly, diversified activities have different theoretical implications for bank risk. Although, according to the portfolio theory, banks may get risk diversification benefits if noninterest income streams are uncorrelated with interest income, diversification can expose banks to new forms of risks (in addition to credit risk), such as market, liquidity, and operational risk [22]. Furthermore, diversified banks may operate with lower capital ratios and pursue riskier activities because many fee-based activities can be performed while holding little or no regulatory capital [23].…”

Section: Literature Reviewmentioning

confidence: 99%

Toward a More Resilient Financial System: Should Banks Be Diversified?

2018

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This article empirically analyzes the effects of revenue diversification on the profitability and risk of a large sample of Eurozone banks over the period from 2000 to 2012. We use the generalized method of moments (GMM) estimator, which is also referred to as the system-GMM estimator. We conclude that higher income diversification favors bank profitability. However, our study does not find a significant relationship between revenue diversification and bank risk, even when considering a crisis period. Our results suggest that establishing restrictions in the universal banking model could damage the resilience of the financial system, and thus affect the sustainability of the uneven economic recovery in Europe. other banking activities [9]. The idea of isolating certain types of activities that are considered especially important to the real economy from other riskier, but less important, activities have also been shared by other recent proposals, such as the "Volcker rule" in the United States and the Vickers Commission report in the United Kingdom. These proposals imply restrictions on the universal banking model, in which banks offer a full range of financial services, and thus could lead to less diversified banks [10].This article complements the existing literature in various ways. First, this work contributes to the ongoing debate surrounding bank diversification by focusing on the Eurozone as an interesting case study. Countries in the Eurozone have become increasingly integrated and set apart from other parts of the EU by their economic management since 1999, following the establishment of the euro. Moreover, the sovereign debt crisis in 2010-2011 highlighted the greater interdependence of countries in the monetary union and emphasized the need to create an integrated financial framework to restore confidence in banks and the euro. The Banking Union, which was initiated in 2012 with the agreement on the establishment of a Single Supervisory Mechanism with the involvement of the European Central Bank (ECB), aims to deliver an integrated financial safety net for these countries. Second, the selected time span, from 2000 to 2012, considers the impact of both the 2008 financial crisis and the sovereign debt crisis starting in 2010 in the European banking sector. As the impact of the financial crisis on the real economy has urged policy makers and regulators to drastically change the "rules of the game" by proposing limits to banking activities, it is important to provide further insights into the effect of revenue diversification on bank performance. Most studies have provided evidence of the effect of revenue diversification under normal economic conditions ([11-13] among others). Third, we use a proxy for revenue diversification that reflects the balance of different types of income (interest, net commissions, trades, and other operating income). Finally, we use the generalized method of moments (GMM) estimator, which was developed for dynamic panel models by Arellano and Bover [14] and Blundell and Bond [...

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“…For example, using data from Vietnamese commercial banks in Vietnam during the 2005-2012 periods, Nguyen and Vo [4] confirm the benefits of non-traditional income to financial safety of large banks but this effect is undocumented for small banks; however, the authors fail to explain for this relationship. Employing four proxies including Z-score and the standard deviation of ROA, ROE and NIM to measure bank risk, Moudud-Ul-Huq, Zheng, Gupta and Ashraf [51] find a negative nexus between revenue diversification and bank risk due to the contribution of activities generating trading and other incomes, which is completely opposite to a research of Le [17]. However, Moudud-Ul-Huq, Zheng, Gupta and Ashraf [51] only use data of Vietnamese banks over the 5-year period from 2011 to 2015.…”

Section: A Revenue Diversification and Financial Fragility Of Banksmentioning

confidence: 99%

“…Employing four proxies including Z-score and the standard deviation of ROA, ROE and NIM to measure bank risk, Moudud-Ul-Huq, Zheng, Gupta and Ashraf [51] find a negative nexus between revenue diversification and bank risk due to the contribution of activities generating trading and other incomes, which is completely opposite to a research of Le [17]. However, Moudud-Ul-Huq, Zheng, Gupta and Ashraf [51] only use data of Vietnamese banks over the 5-year period from 2011 to 2015. In fact, over a longer period, the authors recognize that the banking context in Vietnam has many important factors which lead to unbeneficial effects of revenue diversification on bank stability in U.S, European and other banking sectors, such as high competitive rivalry, the lack of experience in managing such complicated activities, the weak bank-customer connectivity and hence, the volatility of non-interest income.…”

Section: A Revenue Diversification and Financial Fragility Of Banksmentioning

confidence: 99%

Financial Fragility of Banks In Vietnam: The Role of Revenue Diversification and National Governance Quality

2018

EEHSS-18 June 10-11, 2018 Ho Chi Minh City (Vietnam)

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Abstract-This paper investigates the effects of revenue diversification and national governance quality on the financial fragility of 31 commercial banks in Vietnam over the period 2005 -2016. By using an unbalanced panel data and employing GMM estimator, this study"s empirical findings show that an increase in revenue diversification is associated with a rise in bank financial fragility. Meanwhile, a higher in national governance quality drives to lower in financial fragility of Vietnam banks. This study analyses further from the interaction between diversification and national governance quality indicators show that most indicators of Vietnam governance quality tend to play an important role in relationship between diversification and bank financial fragility.

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Does bank diversification heterogeneously affect performance and risk-taking in ASEAN emerging economies?

Cited by 82 publications

References 42 publications

Do service activity impact on the risk of Indonesian banking industry?

Do service activity impact on the risk of Indonesian banking industry?

Toward a More Resilient Financial System: Should Banks Be Diversified?

Financial Fragility of Banks In Vietnam: The Role of Revenue Diversification and National Governance Quality

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