The effect of diversification on bank performance in dual banking system

Hamid, Fazelina Sahul

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.

• Journal Article Type: Article
• Online Publication Date: Oct 14, 2020
• Publication Date: 2020
• Deposit Date: Jan 26, 2023
• Journal: International Journal of Monetary Economics and Finance
• Print ISSN: 1752-0479
• Electronic ISSN: 1752-0487
• Publisher: Inderscience
• Peer Reviewed: Peer Reviewed
• Volume: 13
• Issue: 5
• Pages: 446-470
• DOI: https://doi.org/10.1504/IJMEF.2020.110555
• Keywords: Economics; Econometrics; Finance; diversification; bank performance; stability; profitability; dual banking; dynamic panel data analysis
• Public URL: https://uwe-repository.worktribe.com/output/10307894
• Publisher URL: https://www.inderscienceonline.com/doi/abs/10.1504/IJMEF.2020.110555