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Bank Risk and Non-Interest Income Activities in the Indonesian Banking Industry

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Abstract

The recent trend of product diversification in the Indonesian banking industry underscores the importance of non-interest income activities. This study examines the relationship between product diversification and bank risk over the period of 2002-2008. Our analysis shows clear evidence that the effect of product diversification on bank risk depends highly on the bank's asset size. Specifically, the degree of product diversification is negatively associated with bank risk for small-sized banks. Conversely, the degree of product diversification is positively related to bank risk for large-sized banks. This finding suggests that deregulation encouraging banks to become more involved in non-traditional activities may have an adverse effect on the overall banking system where large-sized banks are playing a significant role in Indonesia.

Suggested Citation

  • Wahyu Yuwana Hidayat & Makoto Kakinaka & Hiroaki Miyamoto, 2012. "Bank Risk and Non-Interest Income Activities in the Indonesian Banking Industry," Working Papers EMS_2012_03, Research Institute, International University of Japan.
  • Handle: RePEc:iuj:wpaper:ems_2012_03
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    References listed on IDEAS

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    Cited by:

    1. Inka Yusgiantoro & Wahyoe Soedarmono & Amine Tarazi, 2017. "Bank consolidation and financial stability revisited: Evidence from Indonesia," Working Papers hal-01577970, HAL.
    2. Nguyen, My & Perera, Shrimal & Skully, Michael, 2016. "Bank market power, ownership, regional presence and revenue diversification: Evidence from Africa," Emerging Markets Review, Elsevier, vol. 27(C), pages 36-62.

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    Keywords

    Bank risk; Product diversification; Non-interest income activities;

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