The Effect of Non-Traditional Product on Bank’s Risk and Profitability

Febriyanti, Febriyanti and Bustaman, Yosman (2015) The Effect of Non-Traditional Product on Bank’s Risk and Profitability. Finance & Accounting Journal, 4 (1). pp. 141-152. ISSN 2252-6242

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Effect of Non-Traditional Product on Bank’s Risk And Profitability A Case Study of Indonesian Commercial Banks.pdf

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The deregulation policies have made the borders between bank and non-bank financial institutions and financial products in the Indonesian banking industry start to break down. These policies have increased the competitive pressure and led to significant changes in banking strategies. Banks start to shift their business into less traditional financial activities and increase their involvement in non-traditional activities through product diversification that generates non-interest income. However, the effect of this shift is still questionable, whether it is significantly or positively related to the performance of the bank. The study aims to analyze the effect of non-traditional product offering on bank’s risk and profitability. A balanced panel data of the 29 public listed banks in Indonesia during the period of 2007 – 2013 is employed in this study. This study found that diversification into non-interest income is positively related but does not significantly impact risk adjusted returns and insolvency risk. However, diversification in non-interest income is negatively related to insolvency risk and risk-adjusted returns. On the other hand, diversification into and within noninterest income is positively related to the bank’s profitability.

Item Type: Article
Uncontrolled Keywords: Finance and banking; Non-traditional product; Non-interest income; Diversification; Bank performance.
Subjects: H Social Sciences > HG Finance > HG1501-3550 Banking
H Social Sciences > HG Finance > HG4001-4285 Finance management. Business finance.
Divisions: Faculty of Business Administration and Communication > Department of Accounting
Depositing User: Maria Lamury
Date Deposited: 24 Sep 2020 14:35
Last Modified: 24 Sep 2020 15:23

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