Title: The effect of diversification on bank performance in dual banking system

Authors: Fazelina Sahul Hamid

Addresses: Department of Economics, School of Distance Education, Universiti Sains Malaysia, Penang, 11800, Malaysia

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.

Keywords: diversification; bank performance; stability; profitability; dual banking; dynamic panel data analysis.

DOI: 10.1504/IJMEF.2020.10031589

International Journal of Monetary Economics and Finance, 2020 Vol.13 No.5, pp.446 - 470

Received: 20 Dec 2019
Accepted: 19 May 2020

Published online: 14 Oct 2020 *

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