Impact of loan portfolio diversification and income diversification on interest margin in ASEAN banking market

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2 Citations (Scopus)

Abstract

This study aims to investigate the impact of loan portfolio diversification and income diversification in ASEAN-4 banking markets. Loan portfolio diversification consists of credit to different sectors and different types of credit offered to customers. This study applied a model of bank as a dealer, initiated by Ho and Saunders (1981), and the latest developed by Maudos and Solis (2009). We employed static and also dynamic panel data using System Generalised Method of Moment (System GMM) to estimate the model. The results show a decreasing trend in banks' net interest margins, which is consistent with the increase in selling of bank non-traditional products in this market that indicates the existence of cross-subsidy in revenue from non-traditional to traditional banking products. In addition, less diversification in credit sectors positively and significantly affects net interest margin. Furthermore, we also found that lesser competition, increases interest margin. However, foreign bank penetration will end up with a significant decrease in NIM.

Original languageEnglish
Pages (from-to)189-204
Number of pages16
JournalPertanika Journal of Social Sciences and Humanities
Volume24
Issue numberMay
Publication statusPublished - 1 May 2016

Keywords

  • ASEAN
  • Foreign bank penetration
  • Loan portfolio diversification
  • Market power
  • Net interest margin
  • Non-interest income diversification

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