Do non-interest income activities matter for banking sector efficiency? A net interest margin perspective

A new article by Maria Semenova (LaBS Head) and Sunday Adesine (University of Milano) "Do non-interest income activities matter for banking sector efficiency? A net interest margin perspective" was published in Applied econometrics journal.

This paper explores the effects of non‑interest income (NII) generating activities on bank‑
ing sector efficiency in 152 countries from 1996 to 2017. Contrary to previous studies that
examine the effects of diversification on banking performance at the micro‑level, this study
seeks to provide new insights about the effects of diversification at the aggregate level on
bank efficiency. This aspect offers a chance to capture the whole banking sector and provides
a broader understanding of the effects of banking sector diversification. Our baseline results
reveal that engaging in NII activities is positively associated with banking sector efficiency.
Using the dynamic threshold regression method, we do not find a tipping point beyond which
the benefits of NII activities have an adverse impact on banking sector efficiency. These results
are insensitive to different groups of countries. Our findings generally suggest that banking
liberalization contributes to the efficiency of the banking sector. In this sense, the findings
of this study support banking sector diversification policies implemented in many countries
since the 1980s and 1990s.

The paper is available here.