Impact of non-interest income and revenue concentration on bank risk in South Asia

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Banks not only rely on the traditional way of generating income, they also opt for non-interest income (NII) to survive in a competitive environment. Banks in South Asia are diversifying their income from interest to non-interest sources in order to reduce risk and generate high returns. This study examines the impact of non-interest income (NII) and revenue concentration on banks’ risk in South Asian countries such as Pakistan, Sri Lanka, India and Bangladesh. Panel data for eighty-five banks from 2009 to 2018 is used. Generalized Method of Moments (GMM) is employed to analyze the data. The study finds that non-interest source income and revenue concentration significantly affect bank risk in the overall analysis. The study finds different results depending on the regulations and application of the regulatory system in each country. Non-interest income reveals a significant impact on bank risk for Pakistan, India and Bangladesh, but insignificant for Si Lanka. Revenue concentration has a significant effect on bank risk in Pakistan and India, however, it does not affect bank risk in Sri Lanka and Bangladesh. This study recommends that bank managers focus on different sources of revenue generation in order to minimize their level of risk through a diversification strategy to enhance efficiency. This study contributes to the banking sector literature of South Asian markets.

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    • Table 1. Measurement of variables
    • Table 2. Descriptive statistics and correlation analysis
    • Table 3. Multicollinearity test
    • Table 4. Two-step dynamic panel regression
    • Table 5. Country-wise analysis
    • Conceptualization
      Ahmed Imran Hunjra, Qasim Zureigat, Rashid Mehmood
    • Methodology
      Ahmed Imran Hunjra, Tahar Tayachi, Rashid Mehmood
    • Project administration
      Ahmed Imran Hunjra, Tahar Tayachi
    • Supervision
      Ahmed Imran Hunjra, Tahar Tayachi
    • Writing – original draft
      Ahmed Imran Hunjra, Tahar Tayachi, Rashid Mehmood
    • Data curation
      Qasim Zureigat, Tahar Tayachi
    • Formal Analysis
      Qasim Zureigat, Rashid Mehmood
    • Investigation
      Qasim Zureigat, Rashid Mehmood
    • Validation
      Qasim Zureigat, Tahar Tayachi, Rashid Mehmood
    • Writing – review & editing
      Qasim Zureigat, Tahar Tayachi
    • Resources
      Tahar Tayachi, Rashid Mehmood
    • Software
      Tahar Tayachi, Rashid Mehmood