Search

Purpose – In this article, the research objective is to empirically investigate the effect of the adoption of the Brazilian instant payment system, Pix, on the local credit market structure and the diversification of the banking system in Brazilian municipalities. Design/methodology/approach – By analyzing the data, in this study, we compile and align data from supervisory and public sources, covering the period from 2019 to 2022 in Brazil. As of 2014, Brazil was comprised of 5568 municipalities distributed across five regions: North (450 municipalities), Northeast (1792), Midwest (467), Southeast (1668) and South (1191), according to the Brazilian Institute of Geography and Statistics (IBGE). Our analysis relies on the volume and quantity of Pix to the outstanding credit operations in Brazil. Findings – This article provides evidence that the widespread adoption of Pix has impacted the financial structure of municipalities. This analysis of banking concentration in the country and municipalities, based on banking relationships, helped us assess whether the adoption of Pix had any correlation with the increase in credit lines. Overall, the results from the statistical tables suggest that the adoption of Pix may be having a positive impact on the local credit market structure. Originality/value – The originality contribution of the study is to initiate an investigation into the impact of this instant payment system, Pix, on the Brazilian reality. Pix was launched in 2020, amid the COVID-19 pandemic, and had significant numbers, such as over 61% of the adult population having at least one Pix key registered in a little over a year; about 100 million people made at least one payment with Pix; and more than 1.4 billion transactions per month, with 72% between individuals, as presented by the REB 2021.

This paper explores the impact of market competition on banks' diversification strategies. Through a unique sample of Vietnamese commercial banks during 2007 to 2021, our most important finding is that the bank competition impact may depend on the specific type of diversification under analysis. Specifically, we document that banks are more likely to diversify their asset portfolios and income sources into non-lending activities and non-interest revenues amid high competition. In contrast, loan portfolios of banks facing more competition tend to be less diversified across different economic sectors. Besides, funding diversity in another vein may not react to changes in the banking market structure. Further empirical results reveal that the influence of market competition on bank business models is more pronounced at smaller and riskier banks, suggesting that a competitive market places greater pressure on more vulnerable banks and causes them to adopt a more aggressive diversification strategy. Based on these findings, critical policy implications include the development of frameworks to guide banks' activity diversification strategies, monitoring sectoral concentration risks, and providing targeted support and guidance for specific groups of banks, particularly smaller and riskier institutions, within a competitive banking environment. Plain language summary: The impact of market competition on bank diversification strategies This paper explores the impact of market competition on banking diversification strategies. We simultaneously incorporate structural (market concentration) and non-structural approaches to establish the measurement of competition, as any analysis relying on only one competition measure could be misleading. Unlike prior research, we comprehensively analyze different dimensions of bank diversification from asset, funding, income, and sectoral loan portfolios. Through a unique sample of Vietnamese commercial banks from 2007 to 2021, our most important finding is that the bank competition impact may depend on the specific type of diversification under analysis. Specifically, we document that banks are more likely to diversify their asset portfolios and income sources into non-lending activities and non-interest revenues amid high competition. In contrast, loan portfolios of banks facing more competition tend to be less diversified across different economic sectors. Besides, funding diversity in another vein may not react to changes in the banking market structure. Our results not only survive after alternative econometric strategies and subsample analysis but are also robust to a series of modifications in the bank diversification and competition measurements. We further ask whether bank-level heterogeneity matters to the impact of market competition on bank diversification. The empirical results reveal that the influence of market competition on bank business models is more pronounced at smaller and riskier banks, suggesting that a competitive market places greater pressure on more vulnerable banks and causes them to adopt a more aggressive diversification strategy. [ABSTRACT FROM AUTHOR]

This article examines the relationship between bank diversification and performance in the Japanese banking sector. We use panel data from 141 banks over the period 2000–2022 to investigate whether banks can improve profitability and reduce risk through diversification strategies. Our evidence shows that diversification can improve bank profitability at the cost of a decline in net interest margins, suggesting banks are using the interest business as a loss leader to promote other business lines. We find that asset diversification has a risk‐reducing effect, which supports the portfolio hypothesis. Some evidence also implies that there is a more complex nonlinear relationship. This can be partly attributed to bank type, as the diversification effects vary across different types of banks. Furthermore, the decomposition of non‐interest income reveals that fees and commissions negatively influence return on assets while simultaneously reducing bank risk. [ABSTRACT FROM AUTHOR]

The paper explores the impact of bank diversification on earnings opacity. We aim at offering a comprehensive analysis by focusing on four dimensions of diversification: income, assets, funding, and loan portfolios. Using data from Vietnam over the period 2007–2022, we document consistent and robust evidence that increased diversification across all forms mitigates earnings management via discretionary loan loss provisions. To shed further light on this pattern, we examine how the banking complexity and opacity nexus varies with multiple measures of bank competition. We find that more intense competition in the banking system likely accentuates the impact of diversification on bank earnings manipulations. Our findings provide important implications related to bank business models and banking market structures in the era of financial deregulation and innovation.

We examine the effect of a chief executive officer (CEO)'s expertise power on bank diversification. Using US bank data from 1990 to 2020, we find that a CEO's expertise power is positively associated with bank diversification. Market competition and board composition (size and independence) positively affect this relationship. We also find that CEO delta and vega are the underlying mechanisms through which expertise power leads to greater diversification. We address endogeneity concerns using the two‐stage least squares, Heckman estimation and the difference‐in‐differences approaches and check result robustness in several ways. We provide a new explanation for bank diversification that is useful for policymakers in developing a bank strategy concerning CEO behaviour in diversification. [ABSTRACT FROM AUTHOR]

The main purpose of this paper is to check whether bank profitability benefits from bank diversification by considering the moderating role of the economic freedom (EF) and financial freedom (FF). This paper uses a sample of 83 conventional banks operating in the MENA countries over the period 2005–2020 and, performs an empirical approach based on the System Generalized Method of Moments (SGMM). To get a better understanding and reliable results on the impact of NII on bank profitability, we split the MENA region in two sub-regions. The first block contains the Gulf Cooperation Council (GCC) countries with a sample of 40 banks and, the second covers the non-GCC countries with a sample of 43 banks. Empirical findings of the aggregate analysis reveal that bank profitability is more sensitive to bank diversification and, benefits from more EF and FF. Furthermore, we found that the interaction between bank diversification, EF and FF negatively affects the level of profitability. The results of the disaggregated analysis confirm the same findings concerning the positive effect of EF and FF and the negative effect of the interactional relationship. However, the effect of bank diversification differs across the two sub-samples. [ABSTRACT FROM AUTHOR]

This study examines the determinants of cooperative banks' diversification proclivity, with consideration of the spatial dependence effect. The empirical analysis demonstrates that Italian cooperative banks operate as a network with significant spillover effects that should not be ignored. Indeed, local banks compete in the same market segment, and any shift in their diversification strategy has a cascading effect on neighbouring cooperative banks as a result of customer migration. Finally, we observe that an increase in bank market power results in a decline in local bank lending activity. [ABSTRACT FROM AUTHOR]

The purpose of the study is to investigate whether bank diversification influences borrowing firms' financial constraints on investment decisions. It also analyzes whether the different dimensions of bank diversification could alleviate financial constraints to firm investment. Further, the role of bank diversification in achieving firm financial sustainability is explored. By applying the Two-step System GMM, this study examines the effect of changes in bank diversification on financial constraints to borrowing firm investment in a reduced-form investment model with a sample of 810 listed firms in Taiwan over the period 1997–2019. The empirical findings indicate that firms are financially constrained as well as there being a positive relationship between cash flow and investment among Taiwanese listed firms. Additionally, bank diversification significantly reduces the investment-cash flow sensitivity of firms, suggesting that bank diversification mitigates the financial constraints to borrowing firms. Moreover, the multi-diversification of a bank compared to single-diversification will have greater impact on mitigating the firms' financial constraints on investment. Thus, bank diversification strategies are proposed in a bank-based financial system, leading to the easing of the borrowing firms' financial constraints to investments. [ABSTRACT FROM AUTHOR]

This paper investigates how banks adjust their business model amid rising global economic uncertainty. Specifically, we analyze the effect of economic policy uncertainty (EPU) on banks' non-interest income activities, using a large panel dataset of 3913 banks operating in 9 countries over the period 2009–2018. We find no statistically significant effect of EPU on banks' net non-interest income (NNII). Further analysis shows that the lack of impact on NNII is due to a reduction in gross non-interest income which was offset by a decrease in gross non-interest expenses. Our results also suggest that the likelihood of banks to diversify income amid high EPU is conditional on the negative interest rate environment. • We investigate the effects of Economic Policy Uncertainty (EPU) on banks' non-interest income activities. • We show that a high EPU has no significant effect on the net non-interest income of banks. • We find that the absence of effect comes from a reduction in gross non-interest expense. • Finally, the likelihood of banks to diversify income amid high EPU is conditional on the negative interest rate environment. [ABSTRACT FROM AUTHOR]

This article examines the impact of bank risks and diversification on the profitability of commercial banks in Central Africa. The results indicate that the credit risk and liquidity risk have a negative impact on the profitability of these banks. Moreover, credit risk is reduced more through credit rationing than through an in‐depth examination of the borrowers' profile. Lastly, banks use diversification to compensate for revenues lost because of credit rationing. [ABSTRACT FROM AUTHOR]

Purpose ─ The paper empirically explores the conditioning role of loan portfolio diversification in the monetary policy pass-through via the bank lending and risk-taking channels. Methods ─ Data of Vietnamese commercial banks during 2007–2019 is employed to perform regression using the two-step system generalized method of moments in dynamic panel models. For robustness, we approach different choices of monetary policy indicators, ranging from interest-based tools to quantitative-based policy, and consider a rich set of sectoral exposure measures to proxy loan portfolio diversification. Findings ─ Lower interest rates or greater liquidity injection during monetary expansion may increase bank lending and bank risk, thus confirming the working of the bank lending and risk-taking channels of monetary policy transmission. Notably, the potency of these banking channels may be weakened for banks diversifying loan portfolios more into various economic sectors. Implication ─ The findings call for monetary authorities to concentrate on certain types of banks, depending on their loan portfolios when setting monetary policy. When managing banking supervision, banking supervisors should also acknowledge the tradeoff between bank lending and bank risk in response to monetary shocks. Originality ─ For the first time, this paper explores the conditional role of loan portfolio composition and thus further supports the recent upsurge in empirical studies highlighting the role of business models in monetary policy pass-through.

Purpose ─ The paper empirically explores the conditioning role of loan portfolio diversification in the monetary policy pass-through via the bank lending and risk-taking channels. Methods ─ Data of Vietnamese commercial banks during 2007–2019 is employed to perform regression using the two-step system generalized method of moments in dynamic panel models. For robustness, we approach different choices of monetary policy indicators, ranging from interest-based tools to quantitative-based policy, and consider a rich set of sectoral exposure measures to proxy loan portfolio diversification. Findings ─ Lower interest rates or greater liquidity injection during monetary expansion may increase bank lending and bank risk, thus confirming the working of the bank lending and risk-taking channels of monetary policy transmission. Notably, the potency of these banking channels may be weakened for banks diversifying loan portfolios more into various economic sectors. Implication ─ The findings call for monetary authorities to concentrate on certain types of banks, depending on their loan portfolios when setting monetary policy. When managing banking supervision, banking supervisors should also acknowledge the tradeoff between bank lending and bank risk in response to monetary shocks. Originality ─ For the first time, this paper explores the conditional role of loan portfolio composition and thus further supports the recent upsurge in empirical studies highlighting the role of business models in monetary policy pass-through. [ABSTRACT FROM AUTHOR]

This paper explores the impacts of asset, funding, and income diversification strategies and their combinations on the banking system’s performance and risk in Vietnam. Dynamic models, using two-step difference-GMM with panel data collected from 34 Vietnamese commercial banks from 2005 to 2019, are employed. Results indicate that, in general, diversification practices in banking sectors are effective in improving banks’ risk-return profile, especially during the Vietnamese banking crisis from 2011 to 2014. However, using them in combinations is only effective for income and funding diversifications. These results are robust regarding the use of alternative measures of diversification level. Based on the findings, managers and government agencies in the Vietnamese banking sectors could be informed about the diversification strategy effectiveness to aid their strategic decisions on operations, investments, and financing. [ABSTRACT FROM AUTHOR]

Diversification decisions in banks can be atypical owing to the nature of banking business. Banks diversify across business segments such as retail, wholesale or treasury, and spread their sources of liabilities, asset exposures and income types across customer groups, industry sectors and geographies. While the more granular decisions of diversification have regulatory and policy norms to follow, less guidance is available for making segment diversification. Using data of business segments from annual reports of five private sector banks in India for the period 2008–2009 to 2015–2016, the study attempts to find out the decision factors behind their diversification. It is found that though being highly diversified universal banks now, these banks were initially oriented toward certain segments from where they have shifted their portfolios over time. Bank diversification decision involves pursuing segment growth and executed by making capital expenditure and risk capital allocation to the segments. Banks make higher capital expenditure on segments that contribute more to generation of deposits and liabilities. On the other hand, risk capital allocation is determined by segment's share of assets as well as their risk adjusted returns. Segment growth may be targeted with the intent of achieving higher profitability and capital efficiency, but the outcome appears to be uncertain. Business segment diversification of private banks, therefore, seem to be intended toward enhancing resources generation and targeting higher profitability while economizing on risk capital. [ABSTRACT FROM AUTHOR]

Copyright of Erciyes Universitesi Sosyal Bilimler Dergisi is the property of Erciyes Universitesi Sosyal Bilimler Dergisi and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

We investigate the relationship of Indonesian bank diversification towards its long term performance and risk profile with Indonesian bank data from 2009 to 2013. Non-interest income to total operating income of the bank measures its bank diversification level. Bank value is measured by the adjusted Tobin's Q and risk profile which is broken down into total risk, idiosyncratic risk, and systematic risk. The result shows that bank non-interest income diversification has a positive influence on its franchise value. There is, however, no strong evidence that diversification can lower a bank's risk profile.

Even though commercial banks have gradually followed the diversification strategy and deeply penetrated into non-traditional businesses for further income sources, studies on potential diversification benefits provide mixed results. This paper investigates how stock market values bank diversification using a data set of Vietnamese listed banks for the period 2006–2014. Overall, we find a negative relationship between bank diversification and stock market valuation. This implies investor preference for banks focusing on traditional activities. [ABSTRACT FROM AUTHOR]

We examine the impact of the international diversification of banks on the value of their advice in 1,705 cross-border merger and acquisition (M&A) transactions. We find that bidders engaging internationally diversified advisors face lower announcement returns. An increase of one standard deviation in advisor diversification is associated with an announcement return lower by 92 basis points for a bidder acquiring a listed target. The lower bidder returns are attributable to the lower synergies of the deals being completed. Our evidence suggests that internationally diversified advisors offer lower-quality advice to their clients, since their reputational concerns are weakened by having access to multiple geographies from which they can derive fee-based income. We present further evidence that financial incentives in the form of the advisor's involvement in deal financing and market incentives in the form of the potential to gain market share in the bidder country may mitigate some of the negative effects of the international diversification of the advisors. Data, as supplemental material, are available at . This paper was accepted by Wei Jiang, finance. [ABSTRACT FROM AUTHOR]

We examine whether the prevailing national culture has been material in determining bank performance during the recent financial crisis. In this paper, we focus on three particular national culture dimensions: uncertainty avoidance, individualism/collectivism, and power distance. We expect banks from high uncertainty avoidance and power distance societies to perform relatively better during the recent financial crisis. On the other hand, banks in individualistic (collectivist) societies are likely to perform worse (better) during the crisis. Using an international sample of 3438 banks from 48 countries, we find support for our main conjectures. Specifically, we establish that uncertainty avoidance, collectivism, and power distance have a first order impact on bank performance during the crisis. Our results are robust to a battery of additional checks, including additional variables, alternative samples, and correcting for potential endogeneity. [ABSTRACT FROM AUTHOR]

This study examines the interaction of bank risk and non-interest income (trading and non-trading) controlling for the executive incentive compensation effect. We do not find executive stock option compensation (ESO) directly impacts bank risk. On the contrary, bank non-interest income, both trading and non-trading revenue components, positively and significantly affects bank risk. This result is robust to the difference-in-difference regressions, bank fixed effect, and the exclusion of too-big-to-fail banks. In a simultaneous equations setting, non-interest income activities affect bank risk of all types, while ESO does not. Moreover, idiosyncratic risk has a positive effect on bank non-interest income activities, but systematic risk has no effect. This result suggests that executives of banks with high idiosyncratic risk have more incentive to expand into the territory of non-interest income activities. Since high-risk banks pose more concern to investors and regulators, we further examine bank risk by means of quantile regressions which dissect the behavior of banks at the tail risk distribution. The findings point out that banks' decision to diversify into non-traditional business lines is associated with risks in high-risk banks. The impact of non-interest income/trading revenues on bank risk increases in risk, and often the largest impact is spotted for banks with extreme risks. This implies that the leverage effect of non-interest income/trading activities is larger in high-risk banks. [ABSTRACT FROM AUTHOR]

Abstract: An endogenous switching regression model is employed for this study, categorizing the banks into regimes of high and low degrees of diversification, with our results indicating that net interest margins can be less sensitive to fluctuations in bank risk factors for functionally diversified banks as compared to more specialized banks. In turn, this implies that by diversifying their income sources, these banks can reduce the shocks to net interest margins arising from idiosyncratic risk. Our results show that prior findings can hold when the banks are located in a regime with a low degree of diversification. [Copyright &y& Elsevier]