Do Non-Traditional Income, Size, and Growth Affect the Performance of the Banks? Evidence from the Big Three Countries of South Asia
Main Article Content
Abstract
Purpose- The aim of this study is to examine the impact of non-traditional income, size and growth on the performance of the banks in big three economies of South Asia, as in the modern banking, non-traditional income plays a vital role by acting as a link between bank and its customers.
Design- This study utilized the annual data over the period from 1996 to 2015, data were obtained from Federal Reserve Economic Data (FRED). This study examines the long-run as well as the short-run relationship among variables through the statistical technique of Panel ARDL.
Findings- The findings of this study showed a significant and positive relationship between non-traditional income and return on assets as well as bank size and return on assets. While the association among the growth and return on assets is negative but significant.
Policy Implications- Policy recommendation of this study suggests that banks should also explore new avenues of non-interest valued added services to their customers which will not only facilitate their customers also attract new customers which ultimately enhance the performance of the banks as well as the country.
Downloads
Article Details
Copyright (c) 2019 Ramzan Ali, Zahir Zahid Butt, Sami Ullah Butt
This work is licensed under a Creative Commons Attribution 4.0 International License.
Ahamed, M. M. (2017). Asset quality, non-interest income, and bank profitability: Evidence from Indian banks. Economic Modelling, 63, 1-14. DOI: https://doi.org/10.1016/j.econmod.2017.01.016
Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of international financial Markets, Institutions and Money, 18(2), 121-136. DOI: https://doi.org/10.1016/j.intfin.2006.07.001
Bonomi Santos, J., & Ledur Brito, L. A. (2012). Toward a Subjective Measurement Model for Firm Performance. BAR-Brazilian Administration Review, 9. DOI: https://doi.org/10.1590/S1807-76922012000500007
Brighi, P., & Venturelli, V. (2014). How do income diversification, firm size and capital ratio affect performance? Evidence for bank holding companies. Applied Financial Economics, 24(21), 1375-1392. DOI: https://doi.org/10.1080/09603107.2014.925064
Chiorazzo, V., Milani, C., & Salvini, F. (2008). Income diversification and bank performance: Evidence from Italian banks. Journal of Financial Services Research, 33(3), 181-203. DOI: https://doi.org/10.1007/s10693-008-0029-4
Favara, G. (2003). An empirical reassessment of the relationship between finance and growth. DOI: https://doi.org/10.5089/9781451854633.001
Gambacorta, L., Scatigna, M., & Yang, J. (2014). Diversification and bank profitability: a nonlinear approach. Applied Economics Letters, 21(6), 438-441. DOI: https://doi.org/10.1080/13504851.2013.866196
Goddard, J., Molyneux, P., & Wilson, J. O. (2004). Dynamics of growth and profitability in banking. Journal of Money, Credit and Banking, 1069-1090. DOI: https://doi.org/10.1353/mcb.2005.0015
Isik, O., Kosaroglu, S. M., & Demirci, A. (2018). The Impact of Size and Growth Decisions on Turkish Banks’ Profitability.
Johansen, S. (1995). Likelihood-based inference in cointegrated vector autoregressive models: Oxford University Press on Demand. DOI: https://doi.org/10.1093/0198774508.001.0001
Kusi, B. A., & Opoku-Mensah, M. (2018). Does credit information sharing affect funding cost of banks? Evidence from African banks. Int J Fin Econ International Journal of Finance & Economics, 23(1), 19-28. DOI: https://doi.org/10.1002/ijfe.1599
Lee, C.-C., Yang, S.-J., & Chang, C.-H. (2014). Non-interest income, profitability, and risk in banking industry: A cross-country analysis. ECOFIN North American Journal of Economics and Finance, 27, 48-67. DOI: https://doi.org/10.1016/j.najef.2013.11.002
Margaritis, D., & Psillaki, M. (2010). Capital structure, equity ownership and firm performance. Journal of Banking & Finance, 34(3), 621-632. DOI: https://doi.org/10.1016/j.jbankfin.2009.08.023
Mercieca, S., Schaeck, K., & Wolfe, S. (2007). Small European banks: Benefits from diversification? Journal of Banking & Finance, 31(7), 1975-1998. DOI: https://doi.org/10.1016/j.jbankfin.2007.01.004
Pesaran, M. H. (1997). The role of economic theory in modelling the long run. The Economic Journal, 107(440), 178-191. DOI: https://doi.org/10.1111/1468-0297.00151
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621-634. DOI: https://doi.org/10.1080/01621459.1999.10474156
Pesaran, M. H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of econometrics, 68(1), 79-113. DOI: https://doi.org/10.1016/0304-4076(94)01644-F
Rao, N. V., Al-Yahyaee, K. H. M., & Syed, L. A. M. (2007). Capital Structure And Financial Performance: Evidence From Oman. INDIAN JOURNAL OF ECONOMICS AND BUSINESS, 6(1), 1-14.
Stiroh, K. J. (2004). Diversification in banking: Is noninterest income the answer? Journal of Money, Credit, and Banking, 36(5), 853-882. DOI: https://doi.org/10.1353/mcb.2004.0076
Vallascas, F., Crespi, F., & Hagendorff, J. (2012). Income diversification and bank performance during the financial crisis.
Zhou, K. (2014). The effect of income diversification on bank risk: evidence from China. Emerging Markets Finance and Trade, 50(sup3), 201-213. DOI: https://doi.org/10.2753/REE1540-496X5003S312