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.

Citation

Hamid, F. S. (2020). The effect of diversification on bank performance in dual banking system. International Journal of Monetary Economics and Finance, 13(5), 446-470. https://doi.org/10.1504/IJMEF.2020.110555

• 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