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The impact of revenue diversification on bank profitability and risk: evidence from MENA banking industry

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  • Nesrine Ammar
  • Adel Boughrara

Abstract

The aim of this paper is to investigate the effects of revenue diversification on bank performance while shedding light on the impact of the shift towards non-interest income sources. To this end, we use a sample of 275 banks from fourteen MENA countries over 1990–2011. The model estimation using the GMM system reveals that diversification, when taken as a whole, improves bank profitability. We also split the non-interest income and we find that trading-generating business lines contribute the most to boosting profitability and stability. Engaging in non-interest-related activities worsens the benefit-cost trade-off of diversification, induced by the increased insolvency risk.

Suggested Citation

  • Nesrine Ammar & Adel Boughrara, 2019. "The impact of revenue diversification on bank profitability and risk: evidence from MENA banking industry," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 12(1), pages 36-70, January.
    • Handle: RePEc:taf:macfem:v:12:y:2019:i:1:p:36-70
    DOI: 10.1080/17520843.2018.1535513
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    Cited by:

    1. Shabir, Mohsin & Jiang, Ping & Shahab, Yasir & Wang, Wenhao & Işık, Özcan & Mehroush, Iqra, 2024. "Diversification and bank stability: Role of political instability and climate risk," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 63-92.
    2. Davis, E Philip & Ali Abdilahi, Ridwa, 2022. "Econometric Analysis of the Determinants of Bank Profitability in Three Major African Counties: Kenya, Nigeria and South Africa," National Institute of Economic and Social Research (NIESR) Discussion Papers 536, National Institute of Economic and Social Research.
    3. Zouaoui, Haykel & Zoghlami, Feten, 2020. "On the income diversification and bank market power nexus in the MENA countries: Evidence from a GMM panel-VAR approach," Research in International Business and Finance, Elsevier, vol. 52(C).
    4. Haddou, Samira, 2022. "International financial stress spillovers to bank lending: Do internal characteristics matter?," International Review of Financial Analysis, Elsevier, vol. 83(C).
    5. Ochenge, Rogers, 2022. "The effect of revenue diversification on bank profitability and stability during the COVID-19 Pandemic: Evidence from Kenya," KBA Centre for Research on Financial Markets and Policy Working Paper Series 59, Kenya Bankers Association (KBA).
    6. Haykel Zouaoui & Faten Zoghlami, 2023. "What do we know about the impact of income diversification on bank performance? A systematic literature review," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(3), pages 286-309, September.
    7. Ozili, Peterson, 2021. "Bank profitability determinants: comparing the United States, Nigeria and South Africa," MPRA Paper 105638, University Library of Munich, Germany.

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