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Do non-interest income activities matter for banking sector efficiency? A net interest margin perspective

Author

Listed:
  • Adesina, Kolade Sunday

    (University of Milan, Italy)

  • Semenova, Maria

    (HSE University, Moscow, Russia)

Abstract

This paper explores the effects of non-interest income (NII) generating activities on banking sector efficiency in 152 countries from 1996 to 2017. Contrary to previous studies that examine the effects of diversification on banking performance at the micro-level, this study seeks to provide new insights about the effects of diversification at the aggregate level on bank efficiency. This aspect offers a chance to capture the whole banking sector and provides a broader understanding of the effects of banking sector diversification. Our baseline results reveal that engaging in NII activities is positively associated with banking sector efficiency. Using the dynamic threshold regression method, we do not find a tipping point beyond which the benefits of NII activities have an adverse impact on banking sector efficiency. These results are insensitive to different groups of countries. Our findings generally suggest that banking liberalization contributes to the efficiency of the banking sector. In this sense, the findings of this study support banking sector diversification policies implemented in many countries since the 1980s and 1990s.

Suggested Citation

  • Adesina, Kolade Sunday & Semenova, Maria, 2024. "Do non-interest income activities matter for banking sector efficiency? A net interest margin perspective," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 73, pages 59-77.
    • Handle: RePEc:ris:apltrx:0491
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    More about this item

    Keywords

    banks; net interest margin; non-interest income; bank profitability;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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