Effect of Income Diversification on Bank Performance and Risk: Case of Developing Countries

Gökhan Dağılgan

Article Details

Effect of Income Diversification on Bank Performance and Risk: Case of Developing Countries

Authors:

Gökhan Dağılgan

Publisher:

Kütahya Dumlupinar University

Journal:

Dumlupınar Üniversitesi Sosyal Bilimler Dergisi Issue 76, pp.34-42

Document Type:

Article

Publication Date:

4/2023

Document Language:

Turkish

Document ID (Org No.):

2001288472

pISSN:

1302-1842

Keywords:

Abstract:

 With the financial liberalization process of the world economy, banks have tended to engage in different activities instead of just traditional lending activities. While the traditional source of income for banks is interest income, non-interest income has also emerged. Therefore, it has become very important for bank managers, regulators, investors and banks to investigate the relationship between income diversification and banking performance and risk. In this study, the effect of income diversification on bank performance and risk was analyzed using the two-stage System GMM method, using annual data and 352 observations for 22 developing countries between 2005 and 2020. In the findings obtained as a result of the analysis, it was determined that income diversification did not affect the bank performance. However, it is concluded that income diversification reduces financial strength and increases banking risk. While the increase in the economic growth rate increases the banks performance; increases financial strength and reduces risk.

 With the financial liberalization process of the world economy, banks have tended to engage in different activities instead of just traditional lending activities. While the traditional source of income for banks is interest income, non-interest income has also emerged. Therefore, it has become very important for bank managers, regulators, investors and banks to investigate the relationship between income diversification and banking performance and risk. In this study, the effect of income diversification on bank performance and risk was analyzed using the two-stage System GMM method, using annual data and 352 observations for 22 developing countries between 2005 and 2020. In the findings obtained as a result of the analysis, it was determined that income diversification did not affect the bank performance. However, it is concluded that income diversification reduces financial strength and increases banking risk. While the increase in the economic growth rate increases the banks performance; increases financial strength and reduces risk.

 With the financial liberalization process of the world economy, banks have tended to engage in different activities instead of just traditional lending activities. While the traditional source of income for banks is interest income, non-interest income has also emerged. Therefore, it has become very important for bank managers, regulators, investors and banks to investigate the relationship between income diversification and banking performance and risk. In this study, the effect of income diversification on bank performance and risk was analyzed using the two-stage System GMM method, using annual data and 352 observations for 22 developing countries between 2005 and 2020. In the findings obtained as a result of the analysis, it was determined that income diversification did not affect the bank performance. However, it is concluded that income diversification reduces financial strength and increases banking risk. While the increase in the economic growth rate increases the banks performance; increases financial strength and reduces risk.

 Dünya ekonomisinin finansal liberalleşme süreci ile bankalar, sadece geleneksel kredilendirme faaliyetleri yerine farklı faaliyetlerde de bulunmaya yönelmiştir. Bankaların geleneksel gelir kaynağı faiz geliri olmakla birlikte, faiz dışı gelir elde etme durumu da ortaya çıkmıştır. Bundan dolayı banka yöneticileri, düzenleyiciler, yatırımcılar ve bankalar için gelir çeşitlendirmesi ile bankacılık performansı ve riski arasındaki ilişkiyi araştırmak çok önemli bir hale gelmiştir. Bu çalışmada, 22 gelişmekte olan ülkeler için 2005-2020 yılları arasında yıllık veriler ve 352 gözlem kullanılarak, gelir çeşitlendirmesinin banka performansı ve riski üzerindeki etkisi iki aşamalı Sistem GMM yöntemi kullanılarak analiz edilmiştir. Analiz sonucu elde edilen bulgularda, gelir çeşitlendirmesinin banka performansını etkilemediği belirlenmiştir. Fakat gelir çeşitlendirmesinin finansal güçlülüğü azalttığı ve bankacılık riskini artırdığı sonucuna ulaşılmıştır. Ekonomik büyüme oranındaki artış ise banka performansını artırırken; finansal güçlülüğü artırıp riski azaltmaktadır.

Article Details

Effect of Income Diversification on Bank Performance and Risk: Case of Developing Countries

Authors:

Gökhan Dağılgan

Publisher:

Kütahya Dumlupinar University

Journal:

Dumlupınar Üniversitesi Sosyal Bilimler Dergisi Issue 76, pp.34-42

Document Type:

Article

Publication Date:

4/2023

Document Language:

Turkish

Document ID (Org No.):

2001288472

pISSN:

1302-1842

Income diversification

bank performance

banking risk

economic growth

system GMMGelir çeşitlendirme

banka performansı

bankacılık riski

ekonomik büyüme

sistem GMM

Issues

Article Details

Authors: Gökhan Dağılgan

Publisher: Kütahya Dumlupinar University

Journal: Dumlupınar Üniversitesi Sosyal Bilimler Dergisi Issue 76, pp.34-42

Document Type: Article

Publication Date: 4/2023

Document Language: Turkish

Document ID (Org No.): 2001288472

pISSN: 1302-1842

Issues

Authors:

Gökhan Dağılgan

Publisher:

Kütahya Dumlupinar University

Journal:

Dumlupınar Üniversitesi Sosyal Bilimler Dergisi Issue 76, pp.34-42

Document Type:

Article

Publication Date:

4/2023

Document Language:

Turkish

Document ID (Org No.):

2001288472

pISSN:

1302-1842