The effects of revenue diversification and cross border banking on risk and return of banks in Africa

Financial Fragility of Banks In Vietnam: The Role of Revenue Diversification and National Governance Quality

“…Some related studies discuss mostly about the developed countries such as Germany [2], Italia [14], the US [9] or nations in Africa [6,15]. In Asia, there are some papers which investigate this topic in particular in India [6], Philippines [1], China [3,16]. In this paper, the findings can confirm the revenue diversificationbank financial fragility nexus which is conflicting in previous papers.…”

“…Although Rossi, Schwaiger and Winkler [34] find that diversification influences negatively on cost efficiency due to an increase in monitoring costs for individual client management by analyzing Austrian commercial banks over the 1997-2003 period, they also confirm its positive impact on reduction of realized risk because the monitor intensification in turn allows banks to choose a well-qualified loan portfolio to decrease risk. Moreover, it is found that banks having a rise in share of feebased revenue show better performance and stability in the banking sector picture of the GCC region [35], emerging economies [6,10,36] argue that together with cross border banking, income diversification benefits banks in Africa by enhancing their performance and leading to a decrease in insolvency risk. However, revenue diversification is reported to have only low-powered impact on financial soundness in SubSaharan Africa banks [15].…”

“…This paper employs the Z-score which is used by authors to measure risk or financial fragility of banks [6,8,15]. It is an indicator which can estimate the number of standard deviations that a bank"s profit can lead to bankruptcy.…”

“…Some previous papers show a positive relationship where diversification activities lead to stability for banking systems or reducing potential risks [2][3][4][5]. In contrast, a variety of recent studies find that a greater level of non-traditional activities increases risks or financial fragility for banks [3,[6][7][8][9][10]. However, these authors focus on developed countries in US or Europe.…”

“…First, the authors provide evidence about the relevance of revenue diversification and bank financial fragility with larger period in the Vietnam context where the income structure of commercial banks has seen a significant change from mainly focusing on traditional interest activities to expanding non-interest strategies in recent years. Some related studies discuss mostly about the developed countries such as Germany [2], Italia [14], the US [9] or nations in Africa [6,15]. In Asia, there are some papers which investigate this topic in particular in India [6], Philippines [1], China [3,16].…”