The Effect of Non-Interest Income on Bank Profitability and Risk: Evidence from Turkey
There are three purposes of this article, the first of which is to investigate the impact of non-interest income (NNII) on the profitability of banks assessed by both return on assets (ROA) and return on equity (ROE). The second one is to investigate the impact of NNII on risk, assessed by the vola...
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| Format: | Article |
| Language: | English |
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Universidade de Santiago de Compostela
2024-12-01
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| Series: | Revista Galega de Economía |
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| Online Access: | https://revistas.usc.gal/index.php/rge/article/view/9855 |
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| author | Nilgün Acar Balaylar Turan Karımlı Ahsen Emir Bulut |
| author_facet | Nilgün Acar Balaylar Turan Karımlı Ahsen Emir Bulut |
| author_sort | Nilgün Acar Balaylar |
| collection | DOAJ |
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There are three purposes of this article, the first of which is to investigate the impact of non-interest income (NNII) on the profitability of banks assessed by both return on assets (ROA) and return on equity (ROE). The second one is to investigate the impact of NNII on risk, assessed by the volatility of return on assets (SdROA) and the volatility of return on equity (SdROE). The final one is to analyze the impact of the COVID-19 pandemic on bank profitability and risk. To achieve the above, the dynamic panel technique, a two-step GMM estimator, was used with the data of 25 deposit banks operating uninterruptedly from 2002 to 2021. The empirical results show that the NNII was positive and significantly correlated with ROA and ROE. The effect of NNII on the risk level appears to be negative and significantly related. In addition, during the COVID-19 period, it was determined that profitability decreased and risk increased. This shows that NNII is a vital shock absorber during an external shock. Therefore, it could be said that banks should attach importance to income diversification, and sector regulators should encourage innovation to create non-traditional products. Under the adverse conjuncture created by increasing public intervention and the pandemic, in recent years, Turkish banks have been encouraged to diversify their activities further rather than focus solely on traditional activities. NNII appears to be associated with higher profitability and lower risk.
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| format | Article |
| id | doaj-art-b6f473cfaa764d0684ac71477aac164a |
| institution | Kabale University |
| issn | 1132-2799 2255-5951 |
| language | English |
| publishDate | 2024-12-01 |
| publisher | Universidade de Santiago de Compostela |
| record_format | Article |
| series | Revista Galega de Economía |
| spelling | doaj-art-b6f473cfaa764d0684ac71477aac164a2024-12-13T13:52:12ZengUniversidade de Santiago de CompostelaRevista Galega de Economía1132-27992255-59512024-12-0134110.15304/rge.34.1.9855The Effect of Non-Interest Income on Bank Profitability and Risk: Evidence from TurkeyNilgün Acar Balaylar0Turan Karımlı1Ahsen Emir Bulut2Dokuz Eylül UniversityAzerbaijan State Economic UniversityDokuz Eylul University There are three purposes of this article, the first of which is to investigate the impact of non-interest income (NNII) on the profitability of banks assessed by both return on assets (ROA) and return on equity (ROE). The second one is to investigate the impact of NNII on risk, assessed by the volatility of return on assets (SdROA) and the volatility of return on equity (SdROE). The final one is to analyze the impact of the COVID-19 pandemic on bank profitability and risk. To achieve the above, the dynamic panel technique, a two-step GMM estimator, was used with the data of 25 deposit banks operating uninterruptedly from 2002 to 2021. The empirical results show that the NNII was positive and significantly correlated with ROA and ROE. The effect of NNII on the risk level appears to be negative and significantly related. In addition, during the COVID-19 period, it was determined that profitability decreased and risk increased. This shows that NNII is a vital shock absorber during an external shock. Therefore, it could be said that banks should attach importance to income diversification, and sector regulators should encourage innovation to create non-traditional products. Under the adverse conjuncture created by increasing public intervention and the pandemic, in recent years, Turkish banks have been encouraged to diversify their activities further rather than focus solely on traditional activities. NNII appears to be associated with higher profitability and lower risk. https://revistas.usc.gal/index.php/rge/article/view/9855Non-interest incomeProfitablityRiskDinamic panel data model |
| spellingShingle | Nilgün Acar Balaylar Turan Karımlı Ahsen Emir Bulut The Effect of Non-Interest Income on Bank Profitability and Risk: Evidence from Turkey Revista Galega de Economía Non-interest income Profitablity Risk Dinamic panel data model |
| title | The Effect of Non-Interest Income on Bank Profitability and Risk: Evidence from Turkey |
| title_full | The Effect of Non-Interest Income on Bank Profitability and Risk: Evidence from Turkey |
| title_fullStr | The Effect of Non-Interest Income on Bank Profitability and Risk: Evidence from Turkey |
| title_full_unstemmed | The Effect of Non-Interest Income on Bank Profitability and Risk: Evidence from Turkey |
| title_short | The Effect of Non-Interest Income on Bank Profitability and Risk: Evidence from Turkey |
| title_sort | effect of non interest income on bank profitability and risk evidence from turkey |
| topic | Non-interest income Profitablity Risk Dinamic panel data model |
| url | https://revistas.usc.gal/index.php/rge/article/view/9855 |
| work_keys_str_mv | AT nilgunacarbalaylar theeffectofnoninterestincomeonbankprofitabilityandriskevidencefromturkey AT turankarımlı theeffectofnoninterestincomeonbankprofitabilityandriskevidencefromturkey AT ahsenemirbulut theeffectofnoninterestincomeonbankprofitabilityandriskevidencefromturkey AT nilgunacarbalaylar effectofnoninterestincomeonbankprofitabilityandriskevidencefromturkey AT turankarımlı effectofnoninterestincomeonbankprofitabilityandriskevidencefromturkey AT ahsenemirbulut effectofnoninterestincomeonbankprofitabilityandriskevidencefromturkey |