Are there diversification benefits of increasing noninterest income in the Chinese banking industry?

Li, Li; Zhang, Yu

doi:10.1016/j.jempfin.2013.10.004

Cited by 57 publications

(34 citation statements)

References 18 publications

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“…Maudos (2017) concluded that a rise in share of non-interest income has a negative effect on profitability. Li and Zhang (2013) used Chinese banks data over the period 1986-2008 and concluded that a rise in non-interest income has diversification benefits. However, as non-interest income has higher instability and cyclicality than net interest income, relying more on non-interest income may aggravate the risk/return trade-off.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries

Nisar

Peng

Wang

et al. 2018

IJFS

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This paper is a contribution to the ongoing debate on the benefits and drawbacks of bank revenue diversification. Revenue diversification may benefit banks if diversified activities are inherently less risky and possess high returns, while it may hurt banks if diversified activities are more risky and have low returns. Analyzing a panel dataset of 200 commercial banks from all South Asian countries, we found that overall revenue diversification into non-interest income has a positive impact on the profitability and stability of South Asian commercial banks. We further observed that different types of non-interest income-generating activities have different impacts on bank performance and stability. While fees and commission incomes have a negative impact on the profitability and stability of South Asian commercial banks, other non-interest income has a positive impact. Our results imply that banks can benefit from revenue diversification if they diversify into specific types of non-interest income-generating activities. Our findings are robust and relevant to the use of alternative measures of revenue diversification, profitability and stability.

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Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…On the other hand, authors such as Elsas et al (2010) and Sanya and Wolfe (2011) find a positive association between non-interest income and profitability. Another group of studies concludes that revenue diversification does not increase profitability (Lee et al 2014b;Li and Zhang 2013).…”

Section: Introductionmentioning

confidence: 99%

The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries

Nisar

Peng

Wang

et al. 2018

IJFS

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“…One plausible explanation is that the proportion of non-interest income to the net operating revenue presented U-shaped pattern, which results in the U-shaped relationship between non-interest income and the bank efficiency. According to the study from Li Li and Yu Zhang [1], the contribution of non-interest income to the net operating revenue decreased from 1996 (30. , Chinese GDP growth rates were 9.3%, 7.8%, 7.6%, 9% and 8.5% respectively, and the growth rates of both net interest income and noninterest income were also undergoing a downward phase. It seems that the economic cycle has an impact on the revenue of China's banking sector [1].…”

Section: Efficiency With and Without Non-interest Incomementioning

confidence: 99%

“…Although traditional interest income is still the main source of revenue till now, as evidenced by the fact that the net interest income of China's banking sector accounts for 66% of after-tax profits by the end of 2011 1 , increasing proportion of no-interest income and improving revenue structure has become a common consensus among domestic commercial banks.…”

Section: Introductionmentioning

confidence: 99%

“…Therefore, the nontraditional business generating non-interest income should be developed in order to reduce the impact of interest rate liberalization. From internal motive prospective, because the contribution of noninterest income to the net operating revenue is relatively low in China banking sector, there are diversification benefits of increasing the noninterest income share to some degree, that is, the growth of non-interest income can reduce bank risk in some extent [1]. As a result, domestic commercial banks have internal motive to promote the growth of noninterest income.…”

Section: Introductionmentioning

confidence: 99%

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The Impact of Non-interest Income on the Efficiency of China’s Banking Sector

2014

J Stock Forex Trad

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This paper investigates the impact of non-interest income on bank efficiency based on data from China banking sector during the period 1996~2010 by establishing DEA model and Panel-Tobit model. The efficiency levels of China banking sector are estimated by employing traditional DEA model, which only considers loans and investments as the output variables, and alternative DEA model, which considers non-interest income as an additional output variable. The results of parametric and non-parametric univariate tests on the efficiency scores show that there are no significant differences in mean and median efficiency calculated from traditional and alternative DEA models. In other words, the inclusion of non-interest income in output vector does not have a statistically significant influence on the efficiency of China banking sector.Additionally, we normalize each bank's efficiency score under these two DEA models in order to avoid potential estimation bias due to the fact that the alternative DEA model has one more output variable than the traditional DEA model, and the findings suggest that only a small proportion of banks present an increase in efficiency level with inclusion of non-interest income, while no significant changes are seen on most banks' efficiency levels. Also, further analysis by establishing Panel-Tobit regression model finds that the relationship between the share of noninterest income to the net operating revenue and the bank efficiency score is not significant, which suggests that the bank efficiency doesn't increase significantly with the increasing non-interest income share. Furthermore, the bank efficiency also does not present a significant increase with the time. Overall, our findings suggest that the inclusion of non-interest income does not significantly increase the efficiency level of China banking sector.

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Dynamics of diversification and banks' risk‐taking and stability: Empirical analysis of commercial banks

Abbas

Ali

2021

Manage Decis Econ

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This study examines the impact of asset, income, and funding diversification on the risk and stability of US commercial banks ranges from 2002 to 2019 by using two-stage instrumental variables and GMM technique. The findings reveal that funding and asset (income) diversification decreases (increases) the banks' risks. The results indicated that income diversification has a significantly detrimental impact on the banks' stability, whereas funding and assets diversification positively contributes to banks' stability. The impact of diversification on risk-taking and stability is heterogeneous for various categories and crisis period. Our study provides useful insights to policymakers and bank regulators.

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Are there diversification benefits of increasing noninterest income in the Chinese banking industry?

Cited by 57 publications

References 18 publications

The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries

The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries

The Impact of Non-interest Income on the Efficiency of China’s Banking Sector

Dynamics of diversification and banks' risk‐taking and stability: Empirical analysis of commercial banks

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