Non-Interest Income Diversification and Bank Performance: Scale Advantages and Institutional Boundary Conditions in Selected Emerging Asian Economies

This study examines how non-interest income diversification affects bank performance and risk in selected emerging Asian economies. Drawing on panel data from 44 banks across China (36) and Thailand (8) over 2022–2025, the analysis employs fixed-effects regressions, mediation analysis, and subsample testing to unpack the performance implications of revenue diversification. The non-interest income ratio (NII) serves as the proxy for income diversification, capturing the strategic shift away from traditional net-interest margins toward fee-based and digitally facilitated activities in markets where mobile payment ecosystems and virtual banking frameworks have reshaped competitive dynamics. Results indicate that NII exerts a statistically significant positive effect on bank profitability (ROA and ROE), with no corresponding increase in risk exposure as measured by Z-score. The relationship is markedly stronger among large banks, consistent with scale advantages in technology infrastructure, network effects, and regulatory compliance cost amortization. Cost efficiency does not mediate the NII-performance nexus, suggesting that revenue-side mechanisms dominate in this context. Cross-country exploratory patterns reveal stable but modest effects in China’s mature diversification ecosystem against larger but statistically imprecise coefficients in Thailand’s early-stage transition. These findings offer a qualified complement to the Western-centric complexity-risk narrative and highlight institutional boundary conditions governing bank diversification outcomes in emerging markets.