Impact of Non-Interest Yield on Profitability of Mongolian Commercial Banks
1
조회
0
다운로드
0
인용
0
참고문헌
키워드
초록
This study examines the impact of non-interest income on bank profitability, focusing on a comprehensive analysis of Mongolian banks from 2015 to 2023. A panel regression model is used to test whether the share of non-interest income has a significant impact on key profitability indicators. We use return on equity (ROE) and return on assets (ROA) as proxies for bank profitability. The results show that there is an inverted U-shaped relationship between bank profitability and non-interest income in Mongolia. This shows that profitability improves as the share of non-interest income increases from low to high levels, but beyond a certain level, higher non-interest income actually decreases profitability. This suggests that Mongolian banks may be less profitable if they increase the share of non-interest income too much. For example, if they do not differentiate between interest and non-interest business based on customer characteristics and serve the same customers at the same time, interest and non-interest income may cancel each other out, reducing the effectiveness of profitability improvement. On the other hand, unlike systemic banks, smaller banks have a lower share of non-interest income and no significant inverted U-shaped relationship between non-interest income and profitability. We show a positive relationship between non-interest income and profitability, suggesting that banks with a higher proportion of non-interest income tend to have better financial performance. We also examine the non-linear effects and role of control variables such as GDP growth, BIS capital adequacy ratio, and NPL ratio. The results indicate that non-interest income has a positive impact on profitability, while higher levels of non-interest income decrease profitability. These insights help us understand how diversification of income sources can improve bank profitability and have valuable implications for bank management and policymakers in emerging markets.
Abstract
This study examines the impact of non-interest income on bank profitability, focusing on a comprehensive analysis of Mongolian banks from 2015 to 2023. A panel regression model is used to test whether the share of non-interest income has a significant impact on key profitability indicators. We use return on equity (ROE) and return on assets (ROA) as proxies for bank profitability. The results show that there is an inverted U-shaped relationship between bank profitability and non-interest income in Mongolia. This shows that profitability improves as the share of non-interest income increases from low to high levels, but beyond a certain level, higher non-interest income actually decreases profitability. This suggests that Mongolian banks may be less profitable if they increase the share of non-interest income too much. For example, if they do not differentiate between interest and non-interest business based on customer characteristics and serve the same customers at the same time, interest and non-interest income may cancel each other out, reducing the effectiveness of profitability improvement. On the other hand, unlike systemic banks, smaller banks have a lower share of non-interest income and no significant inverted U-shaped relationship between non-interest income and profitability. We show a positive relationship between non-interest income and profitability, suggesting that banks with a higher proportion of non-interest income tend to have better financial performance. We also examine the non-linear effects and role of control variables such as GDP growth, BIS capital adequacy ratio, and NPL ratio. The results indicate that non-interest income has a positive impact on profitability, while higher levels of non-interest income decrease profitability. These insights help us understand how diversification of income sources can improve bank profitability and have valuable implications for bank management and policymakers in emerging markets.
참고문헌 (33)
- Acharya, V., "The Seeds of a Crisis : A theory of Bank Liquidity and Risk Taking over the Business Cycle", Journal of financial economics, 106(2), pp.349~366 (2012)
- Bank Risk During the Financial Crisis: do Business Models Matter?, "Altunbas, Y.", European Central Bank, ~ (2011)
- Acharya, V. V., "Should Banks be Diversified? Evidence from Individual Bank Loan Portfolios", The Journal of Business, 79(3), pp.1355~1412 (2006)
- Baatarjargal Shirnen, "Impact of Non-Interest Yield on Profitability of Mongolian Commercial Banks", Master, The Department of Business Administration, pp.2024
- Baele, L., "Does the Stock Market Value Bank Diversification?", Journal of banking and finance, 31(7), pp.1999~2023 (2007)
- Beck, T., "Islamic vs. Conventional Banking: Business Model, Efficiency and Stability", Journal of Banking and finance, 37(2), pp.433~447 (2013)
- Chiorazzo, V., "Income Diversification and Bank Performance : Evidence from Italian Banks", Journal of financial services research, 33(3), pp.181~203 (2008)
- Demirgüç-Kunt, A., "Bank Activity and Funding Strategies : The Impact on Risk and Returns", Journal of Financial economics, 98(3), pp.626~650 (2010)
- Demsetz, R. S., "Diversification, Size, and Risk at Bank Holding Companies", Journal of money, credit, and banking, pp.300~313 (1997)
- DeYoung, R., "Noninterest Income and Financial Performance at US Commercial Banks", Financial Review, 39(1), pp.101~127 (2004)
- DeYoung, R., "The Past, Present, and Probable Future for Community Banks", Journal of Financial Services Research, 25, pp.85~133 (2004)
- DeYoung, R., "Nontraditional Banking Activities and Bank Failures During the Financial Crisis", Journal of financial intermediation, 22(3), pp.397~421 (2013)
- Dietrich, A., "Determinants of Bank Profitability Before and During the Crisis : Evidence from Switzerland", Journal of international financial markets, institutions and money, 21(3), pp.307~327 (2011)
- Elsas, R., "The Anatomy of Bank Diversification", Journal of Banking and Finance, 34(6), pp.1274~1287 (2010)
- Froot, K. A., "Risk Management, Capital Budgeting, and Capital Structure Policy for Financial Institutions : An Integrated Approach", Journal of financial economics, 47(1), pp.55~82 (1998)
- Gürbüz, A. O., "Income Diversification and Bank Performance : Evidence From Turkish Banking Sector", BDDK Bankacılık ve Finansal Piyasalar Dergisi, 7(1), pp.9~29 (2013)
- Goddard, J., "Dynamics of Growth and Profitability in Banking", Journal of money, credit and banking, pp.1069~1090 (2004)
- Köhler, M., "Does Non-Interest Income Make Banks More Risky? Retail-Versus Investment-Oriented Banks", Review of financial economics, 23(4), pp.182~193 (2014)
- Laeven, L., "Is there a Diversification Discount in Financial Conglomerates?", Journal of financial economics, 85(2), pp.331~367 (2007)
- Lee, C. C., "Non-Interest Income, Profitability, and Risk in Banking Industry : A Cross-Country Analysis", Journal of Economics and Finance, 27, pp.48~67 (2014)
- Lepetit, L., "Bank Income Structure and Risk : An Empirical Analysis of European Banks", Journal of banking & finance, 32(8), pp.1452~1467 (2008)
- Lepetit, L., "Bank Insolvency Risk and Time-Varying Z-score Measures", Journal of International Financial Markets, Institutions and Money, 25, pp.73~87 (2013)
- Martinez-Miera, D., "Does Competition Reduce the Risk of Bank Failure?", The Review of Financial Studies, 23(10), pp.3638~3664 (2010)
- Mercieca, S., "Small European Banks : Benefits from Diversification?", Journal of Banking and Finance, 31(7), pp.1975~1998 (2007)
- Mercieca, S., "Bank Market Structure, Competition, and SME Financing Relationships in European Regions", Journal of Financial Services Research, 36, pp.137~155 (2009)
- Meslier, C., "Is Bank Income Diversification Beneficial? Evidence from an Emerging Economy", Journal of International Financial Markets, Institutions and Money, 31, pp.97~126 (2014)
- Pennathur, A. K., "Income Diversification and Risk : Does Ownership Matter? An Empirical Examination of Indian Banks", Journal of Banking and Finance, 36(8), pp.2203~2215 (2012)
- Rogers, K., "An Analysis of Nontraditional Activities at US Commercial Banks", Review of Financial Economics, 8(1), pp.25~39 (1999)
- Sanya, S., "Can Banks in Emerging Economies Benefit from Revenue Diversification?", Journal of financial services research, 40, pp.79~101 (2011)
- Stiroh, K. J., "Diversification in Banking: Is Noninterest Income the Answer?", Journal of money, Credit and Banking, pp.853~882 (2004)
- Stiroh, K. J., "The Dark Side of Diversification : The Case of US Financial Holding Companies", Journal of banking and finance, 30(8), pp.2131~2161 (2006)
- Stiroh, K. J., "A Portfolio View of Banking with Interest and Noninterest Activities", Journal of Money, Credit and Banking, pp.1351~1361 (2006)
- Sufian, F., "Determinants Of Bank Profitability In A Developing Economy: Empirical Evidence From The Philippines", Asian Academy of Management Journal of Accounting and Finance, 4(2) (2008)