Title: What determines income diversification of banking firms in Pakistan?

Authors: Yasir Ashraf; Mian Sajid Nazir; Salah U-Din; Muhammad Shahbaz Yaqoob; Aamer Shahzad

Addresses: Institute of Business Administration, University of the Punjab, Pakistan ' Department of Management Sciences, COMSATS University Islamabad, Lahore Campus, Pakistan ' Bissett School of Business, Mount Royal University, Mount Royal Gate SW, Calgary, Alberta, Canada ' Department of Management Sciences, Virtual University, Pakistan ' Department of Commerce, University of the Punjab – Gujranwala Campus, Pakistan

Abstract: During the last few decades, an increasing tendency of banks has been observed to move from just financial intermediation activities to such new products and services that produce fee-based and commission-based incomes. In this regard, literature provides conflicting evidences on the factors that predict non-interest incomes earned by banks. This study explores the determinants of the non-interest income of commercial banks in Pakistan. Findings provide evidence that bank size, ownership, capital adequacy ratio, net interest margin, loan to assets ratio, implicit interest payment, and management quality are significant estimators of non-interest income. Moreover, market concentration, interest rate policy, and real gross domestic products are also found to have a significant influence on income diversification of banking firms in Pakistan. Foreign banks are earning more non-interest income than domestic banks, whereas, domestic banks are focusing on the conventional function of intermediation. However, this financial intermediation enables these banks to offer fee-based products to both borrowers and depositors that help in generating non-interest income. Policymakers should consider the factors that drive the competition in the market.

Keywords: non-interest income; income diversification; management quality; ownership.

DOI: 10.1504/IJBEX.2023.130776

International Journal of Business Excellence, 2023 Vol.30 No.1, pp.1 - 16

Received: 26 May 2020
Accepted: 29 Jun 2020

Published online: 07 May 2023 *

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