Aug 2026· Journal of Risk and Financial Management· Vol 19, pp. 615· 0 citations· 30 references
Abstract
This paper examines the relationship between revenue diversification, profitability, and risk in European banks, with particular emphasis on the structural break induced by the COVID-19 shock. Using quarterly supervisory data from the European Banking Authority (EBA) over the period 2016Q1–2024Q4, we distinguish between pre- and post-pandemic regimes and estimate dynamic fixed-effects models that account for unobserved heterogeneity and persistence in bank performance. The results reveal a pattern consistent with regime dependence. Descriptive (quintile-based) comparisons suggest that banks with greater reliance on non-interest income tended to report higher profitability prior to COVID-19, although data limitations prevent us from confirming this pattern in a full multivariate regression for the pre-COVID subsample. In the post-COVID period, once bank and time fixed effects, persistence, and balance-sheet characteristics are properly controlled for, revenue diversification does not exert a statistically significant effect on either profitability or earnings volatility; this result is robust across bank fixed effects only, two-way (bank and time) clustered, and one-way (bank) clustered specifications. We show that diversification is systematically associated with differences in bank size, capitalization, and lending intensity, indicating that income structure is closely linked to underlying business model characteristics. These findings suggest that the observed diversification–performance relationship largely reflects cross-sectional heterogeneity rather than a stable causal effect. Overall, the evidence indicates that revenue diversification does not provide a consistent improvement in risk-adjusted performance in European banking. Instead, performance and risk dynamics are primarily driven by balance-sheet composition and persistence. The results highlight the importance of accounting for structural heterogeneity and macroeconomic regimes when evaluating the role of non-interest income in bank performance.
This study examines how non-interest income diversification affects bank performance and risk in selected emerging Asian economies. Drawing on panel data from 44 banks across China (36) and Thailand (8) over 2022–2025, the analysis employs fixed-effects regressions, mediation analysis, and subsample testing to unpack the performance implications of revenue diversification. The non-interest income ratio (NII) serves as the proxy for income diversification, capturing the strategic shift away from traditional net-interest margins toward fee-based and digitally facilitated activities in markets where mobile payment ecosystems and virtual banking frameworks have reshaped competitive dynamics. Results indicate that NII exerts a statistically significant positive effect on bank profitability (ROA and ROE), with no corresponding increase in risk exposure as measured by Z-score. The relationship is markedly stronger among large banks, consistent with scale advantages in technology infrastructure, network effects, and regulatory compliance cost amortization. Cost efficiency does not mediate the NII-performance nexus, suggesting that revenue-side mechanisms dominate in this context. Cross-country exploratory patterns reveal stable but modest effects in China’s mature diversification ecosystem against larger but statistically imprecise coefficients in Thailand’s early-stage transition. These findings offer a qualified complement to the Western-centric complexity-risk narrative and highlight institutional boundary conditions governing bank diversification outcomes in emerging markets.
Qian Fang, N. Rojniruttikul· Journal of Risk and Financia...· 0 citations
The present paper aims to investigate the relationship between non-performing assets (NPAs) and profitability in Indian commercial banks. Focusing on the major economic disruptions, namely, the global financial crisis, demonetization and the COVID-19 pandemic, it examines their role in structurally reshaping the NPA-profitability nexus.
Our dataset comprised a balanced panel of 30 public and private sector commercial banks in India covering the period from 2004 to 2024. We applied Bai–Perron multiple breakpoint tests and Chow tests to identify regime shifts. Static panel regressions with Heteroskedasticity and Autocorrelation Consistent-corrected ordinary least squares and dynamic system generalized method of moments (GMM) estimations are employed to address heteroskedasticity, autocorrelation and endogeneity. The model incorporates bank-specific factors, market concentration indicators, macroeconomic variables and an interaction term between inflation and broad money (BM).
The findings reveal multiple statistically significant structural breaks corresponding to major economic shocks. NPAs consistently exert a significant negative impact on profitability across all regimes, while bank size positively influences return on assets, particularly during crisis periods. Market concentration yields mixed and regime-dependent effects. The interaction between inflation and BM significantly moderates profitability during transitional phases, highlighting the role of inflation-adjusted liquidity conditions in shaping bank performance.
The findings suggest that bank managers should strengthen credit risk monitoring and adopt proactive asset quality management, especially during periods of inflationary liquidity expansion. The policymakers and regulators can benefit from implementing countercyclical capital buffers and dynamic stress-testing frameworks tailored to structural shocks. However, our results should be interpreted with caution as we excluded foreign banks from our dataset and focused solely on Indian commercial banks, which may limit cross-country generalizability. Future research could extend the framework to comparative emerging-market settings.
To the best of our knowledge, this study is the first attempt to integrate structural break analysis with dynamic GMM estimation and to introduce inflation-adjusted liquidity as a moderating mechanism in the NPA-profitability relationship in an emerging economy context.
Faiza Rehman, Mohammad Ammar Ahsan, S. Akhtar et al.· Journal of Financial Regulat...· 0 citations
Abstract This paper examines whether the association between financial risk and firm profitability differs between a frontier and an emerging market, using panel data from the Palestinian Stock Exchange (PEX) and Borsa Istanbul (BIST), 2010–2024. Return on assets (ROA) is the preferred outcome, since earnings per share is not directly comparable across the two markets’ currencies and inflation regimes; EPS is retained as a secondary outcome. Earnings volatility is measured as the rolling standard deviation of EBIT divided by total assets. A Hausman test favors firm and year fixed effects over random effects, the preferred specification throughout. The central specification tests whether the earnings-volatility-profitability association differs between the two markets. Earnings volatility is positively associated with profitability in both markets, but the association is significantly weaker in the frontier market, an attenuation rather than a reversal of sign. This is consistent with, though it does not establish, the hypothesis that limited risk-absorption capacity in frontier markets may weaken this link. The pattern holds across alternative volatility windows and outcome variables, though not under the shortest window tested. Variance inflation factors are assessed using the conventional threshold of 10. The analysis is descriptive; no causal claim is made.
Shaker Alghalayini Emre Kaya· Review of Middle East Econom...· 0 citations
This study aims to investigate the effects of revenue competition, ownership structure and diversification on the performance and financial stability in banking. Using a sample of Tunisian listed banks between 2008 and 2023, the authors examine how these factors interact, with a focus on the triple interaction of ownership, competition and diversification and consider the impact of major economic and political events such as the 2008 global financial crisis, the 2011 Revolution, post-2016 banking reforms and the COVID-19 pandemic.
Using quantile regression analysis, the study evaluates the heterogeneous effects of competition, ownership structure and diversification on the performance and stability of both public and private banks. Control variables like size, capitalization, liquidity risk, asset growth, inflation and GDP growth are incorporated to capture internal and macroeconomic influences.
The findings reveal substantial heterogeneity across the performance distribution. For public banks, market power (Lerner index) enhances profitability at intermediate and upper quantiles (Q25-Q75), while state ownership exerts a consistently negative effect on both return on assets and net interest margin (NIM) across most quantiles, reflecting persistent governance rigidities. Revenue diversification deteriorates profitability among medium- and high-performing public banks (Q50-Q90) and undermines intermediation margins at the upper tail. The triple interaction of public ownership, market power and diversification further depresses NIM at Q50-Q90, pointing to a governance trap in which institutional complexity offsets any strategic gains. For private banks, private ownership strengthens intermediation margins from Q10 to Q75, while the joint effect of diversification and market power amplifies profitability among top performers but reduces it when all three factors, private ownership, market power and diversification, coexist simultaneously (Q50-Q75). External shocks, notably the 2011 Tunisian Revolution and the COVID-19 pandemic, significantly reinforce these distributional divergences.
This study makes a meaningful contribution to the existing literature by shedding light on the conditional and heterogeneous impact of diversification, competition and ownership structure on bank performance and stability within an emerging market context. Beyond individual factor effects, it offers a nuanced understanding of how the interplay among strategic and structural variables, compounded by external economic and political shocks, collectively shapes banks’ resilience. In doing so, it provides actionable insights and practical guidance for both policymakers and bank managers navigating the distinctive challenges of emerging economies.
The authors’ research work uses an original data set in banking and provides insights into how interactions among strategic and structural factors, combined with macroeconomic shocks, shape the resilience of banks, offering guidance for policymakers and bank managers in emerging economies.
N. Alouane, Samira Haddou, Jocelyn Grira· Review of Accounting and Fin...· 0 citations
The value-creation capacity of active asset management remains one of the most debated issues within modern portfolio theory. While the relationship between costs and performance is typically negative in developed markets, in smaller and less liquid markets—where information asymmetry is more pronounced—higher fees may also be interpreted as signals of managerial ability. This study investigates this apparent contradiction in the context of the Hungarian equity mutual fund market, using a panel dataset covering 79 funds over the period 2017–2024, with a particular focus on identifying non-linear effects among performance determinants. The methodological framework combines fixed-effects panel regression with Driscoll-Kraay robust standard errors, complemented by quantile regression estimates to examine different segments of the return and alpha distributions. The results indicate that growth dynamics (NAV_change) and cumulative historical performance (Yield_from_start) consistently enhance fund performance, while the negative effect of past returns suggests the dominance of mean reversion. The impact of the total expense ratio (TER) proves to be non-linear and specification-dependent—a finding con-firmed by an extensive battery of robustness checks—thereby rejecting the cost-signalling hypothesis with respect to risk-adjusted excess returns (Jensen’s alpha). Quantile estimates further reveal that the effects of economies of scale and cost structure differ significantly between underperforming and top-performing funds, confirming that analyses based on average effects obscure the heterogeneity of market dynamics. By jointly modelling returns and risk-adjusted performance across the full conditional distribution, the study contributes a distribution-sensitive theoretical account of active management’s limitations in a small, less liquid market, showing that these limitations are conditional on fund size and cost structure rather than uniform across the fund population.
László Vancsura, Tibor Tatay, Tivadar Zakár et al.· Economies· 0 citations
In emerging economies, especially in the West African Monetary Zone (WAMZ), where banks predominate in financial intermediation despite macroeconomic uncertainty, the financial sustainability of banks remains a major policy concern. This study adds two important new findings to the existing literature by examining the impact of income diversification on banks' long-term growth. First, this study employs the sustainable growth rate as the primary performance metric, capturing banks' capacity to expand internally without external funding, in contrast to most earlier studies that focus on short-term profitability or stability metrics. Second, the study provides new evidence on how market structure influences the efficacy of income diversification strategies by explicitly modeling bank competition as an interaction factor in the relationship between income diversification and sustainable growth rate. Using an unbalanced panel of 24 listed banks from Ghana and Nigeria over the period 2015-2024, and a dynamic two-step system generalized method of moments estimator to address endogeneity and persistence, the results show that income diversification greatly improves banks' sustainable growth. More significantly, there is a positive and statistically significant interaction between income diversification and bank competition, suggesting that higher pricing power and more intense competition increase the advantages of income diversification. These results extend the banking literature by demonstrating that the impact of income diversification on long-term growth is conditional on bank market structure. The study presents important policy implications for regulators in the WAMZ, emphasizing the need to promote prudent income diversification strategies alongside a competitive banking environment to enhance financial sustainability.
F. Anande-Kur, Suresh Ramakrishnan, Khartic Rao Manokaran et al.· Asian Journal of Empirical R...· 0 citations