The Effect of Income Diversification on Bank Performance: In Case of Selected Commercial Banks in Ethiopia
| dc.contributor.advisor | Yohannes Workaferahu (PhD) | |
| dc.contributor.author | Dessalegn Munach | |
| dc.date.accessioned | 2024-04-17T07:21:03Z | |
| dc.date.available | 2024-04-17T07:21:03Z | |
| dc.date.issued | 2024-01-10 | |
| dc.description.abstract | This thesis investigates the relationship between income diversification and bank performance based on financial performances of 17 commercial banks. Income diversification is the practice of raising a bank's proportion of fee, net trading profits and other non-interest income within its net operating income, in other words it is an expansion into new revenue-generating financial services, with the exception of conventional intermediation activities. The study sampled the financial performances of 17 commercial banks during the period of 2014 to 2021 and used explanatory research design, quantitative research approach and secondary data sources that were gained from National Bank of Ethiopia like annual reports, financial statements and company information. The model that employed in this thesis was Random Effect model. The panel data was presented by using inferential statistics. The proxy (dependent variable) is return on assets (ROA) that measures performance of the banks and the independent variables are Herfindahl Hirschman Index (HHI), Herfindahl Hirschman Index for non-interest income (HHINONII), ratio of non-interest income to total asset (NONIITA), Share of Fees and Commission over Noninterest income (SHFC), the ratio of loan to total asset(LOANTA)and exchange rate (EXR). The econometric results have shown positive and significant association between ratio of non-interest income to total asset (NONIITA) and bank performance (ROA) while Herfindahl Hirschman Index for net operating income (HHI) indicated negative and significant impact on bank performance this in part justifies policy actions to promote diversification. The coefficients of the remaining variables have shown positive but insignificant association with bank performance except HHINONII. From a policy point of view the finding suggests that bank regulations which might tend to increase the level of income diversification (non-interest income) should be evaluated carefully. Generally, the major findings reveal that income diversification has impact on return on asset of the banks i.e. an increase in income diversification leads to an increase in return on asset (ROA), which implies that banks are benefited from diversification of their activities beyond the traditional lending activities. Finally, the study recommends that Ethiopian commercial banks to diversify their income across non-interest income and to use it wisely by considering the right areas of diversification. | |
| dc.identifier.uri | https://etd.aau.edu.et/handle/123456789/2737 | |
| dc.language.iso | en_US | |
| dc.publisher | AAU | |
| dc.title | The Effect of Income Diversification on Bank Performance: In Case of Selected Commercial Banks in Ethiopia | |
| dc.type | Thesis |