Market Power, Revenue Diversification and Bank Stability: Evidence from Selected South Asian Countries
Posted: 26 Apr 2012 Last revised: 20 Jul 2013
Date Written: August 20, 2011
We investigate the association between bank market power and revenue diversification and whether revenue diversification interacts with market power impacting on individual bank stability. These issues are explored in the context of four South Asian banking markets (Bangladesh, India, Pakistan and Sri Lanka) during 1998-2008. Our Generalised Methods of Moments (GMM) estimators indicate that South Asian banks with greater market power focus more on traditional interest income generating activities. Such banks, however, become more stable when they diversify across both interest- and non-interest income activities.
Keywords: market power, bank stability, revenue diversification, South Asian, Z-score, Lerner Index
JEL Classification: G21, G28, O23
Suggested Citation: Suggested Citation