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Revenue diversification in emerging market banks: implications for financial performance

Listed author(s):
  • Saoussen Ben Gamra

    ()

    (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

  • Dominique Plihon

    ()

    (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

Shaped by structural forces of change, banking in emerging markets has recently experienced a decline in its traditional activities, leading banks to diversify into new business strategies. This paper examines whether the observed shift into non-interest based activities improves financial performance. Using a sample of 714 banks across 14 East-Asian and Latin-American countries over the post 1997-crisis changing structure, we find that diversification gains are more than offset by the cost of increased exposure to the non-interest income, specifically by the trading income volatility. But this diversification performance's effect is found to be no linear with risk, and significantly not uniform among banks and across business lines. An implication of these findings is that banking institutions can reap diversification benefits as long as they well-studied it depending on their specific characteristics, competences and risk levels, and as they choose the right niche.

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Paper provided by HAL in its series CEPN Working Papers with number hal-00598136.

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Date of creation: 2011
Handle: RePEc:hal:cepnwp:hal-00598136
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