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The effect of diversification on bank performance in dual banking system

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  • Fazelina Sahul Hamid

Abstract

This study analyses the impact of banks' diversification strategies on their risk-adjusted performance using the sample of commercial banks in 22 Muslim countries with dual banking system during 2000-2016. Islamic banks' performance is more strongly affected by diversification strategies. Revenue, non-interest income and asset diversification dampen the risk adjusted returns of Islamic banks but enhance their stability. Higher dependence on non-interest income lowers conventional banks risk adjusted returns, while higher dependence on non-loan assets raises it. Before crisis, non-interest income diversification raises the risk adjusted returns of Islamic and conventional banks. Revenue and non-interest income diversification have positive impact on Islamic banks' stability after crisis. Size influences the impact of diversification on bank performance.

Suggested Citation

  • Fazelina Sahul Hamid, 2020. "The effect of diversification on bank performance in dual banking system," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 13(5), pages 446-470.
    • Handle: RePEc:ids:ijmefi:v:13:y:2020:i:5:p:446-470
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    Cited by:

    1. Šeho, Mirzet & Ibrahim, Mansor H. & Mirakhor, Abbas, 2021. "Does sectoral diversification of loans and financing improve bank returns and risk in dual-banking systems?," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).

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