March 2008 working paper no. 330 Issn 1975-5163 Joon-Ho Hahm

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Bog'liq
Non-Interest Income of Commercial Banks

Journal of Money, Credit and Banking, Vol. 26, No. 5, pp. 854-882.
Stiroh, K. J., 2004b, “Do Community Banks Benefit from Diversification?” Journal of
Financial Services Research, Vol. 25, No. 2-3, pp. 135-160.
Valverde, S. C. and Fernandez, F. R., 2007, “The Determinants of Bank Margins in
European Banking,” Journal of Banking and Finance, Vol. 31, pp. 2043-63.
Wall, L. D., Reichert, A. K., and Mohanty, S., 1993, “Deregulation and the Opportunities
for Commercial Bank Diversification,” Economic Review, Federal Reserve Bank
of Atlanta, September/October, pp. 1-25.

28
Table 1: Sample Mean Values of Major Bank Statistics (1992-2006)
Country
Code
Assets
(million
USD)
Capital Ratio
(%)
Loan Ratio
(%)
Impaired Loan
Ratio (%)
ROA
(%)
ROE
(%)
Net Interest
Margin (%)
Cost-
Income
Ratio (%)
Interest
Revenue
(million USD)
Non-Interest
Income
Ratio (%)
AT
57,001.370
4.076
54.914
3.174
0.452
12.356
1.455
60.266
833.119
37.91
AU
48,029.010
5.085
76.809
1.396
0.856
20.161
2.381
56.112
846.692
33.42
BE
184,862.600
3.179
32.814
2.497
0.596
18.028
1.421
61.636
1,692.498
37.53
CA
98,136.410
5.092
54.856
2.144
0.633
13.237
2.257
68.324
1,900.446
47.94
CH
94,154.460
6.913
60.180
3.332
0.679
11.339
1.963
63.865
711.413
42.72
CZ
14,284.290
6.912
42.568
12.211
0.607
8.167
3.000
56.750
427.810
38.28
DE
133,792.200
5.634
50.263
3.995
0.331
7.437
2.071
62.716
1,427.213
26.33
DK
64,976.540
4.728
59.939
1.288
0.630
12.874
1.678
53.215
794.145
15.55
ES
71,103.600
6.756
59.309
2.245
0.962
11.315
2.747
60.912
1,326.724
33.15
FI
38,127.900
6.014
51.712
0.678
0.344
5.539
1.640
54.461
534.695
33.82
FR
102,595.900
7.131
55.399
6.920
0.199
1.968
2.172
74.506
1,149.983
40.63
GB
103,770.100
9.177
50.470
1.468
0.929
13.422
3.385
63.133
1,253.234
47.85
GR
42,044.020
6.024
60.076
6.654
0.683
10.055
3.270
63.097
1,196.349
30.86
HU
10,403.930
7.256
54.605
4.683
1.856
26.183
5.629
65.734
514.559
36.73
IE
36,356.910
6.874
40.713
0.313
0.431
11.821
0.908
40.971
344.567
12.46
IS
28,103.510
7.337
68.283
0.720
2.252
30.918
2.134
39.070
536.045
54.47
IT
53,408.510
6.845
56.741
5.931
0.603
8.670
2.595
66.698
1,038.598
37.33
JP
116,184.800
4.734
64.641
6.594
-0.096
-2.652
1.596
61.325
1,349.895
33.87
KR
35,911.500
4.905
56.620
4.041
0.033
-4.427
2.332
65.510
759.215
40.64
LU
13,773.450
3.732
24.509
3.254
0.469
13.669
0.589
37.568
72.619
38.81
MX
29,084.730
7.181
58.392
5.257
1.160
12.842
5.297
73.815
1,013.272
27.81
NL
114,827.000
4.029
54.986
1.117
0.484
44.652
1.098
83.516
1,311.699
35.25
NO
34,744.520
5.747
75.083
3.187
0.623
7.578
2.610
66.994
675.938
31.25
NZ
194,528.400
4.688
65.434
1.275
1.123
33.725
2.217
54.390
1,885.949
41.14
PL
12,134.750
10.381
44.939
10.914
1.649
15.311
3.218
66.954
369.917
50.45
PT
144,899.900
5.433
53.990
3.550
0.420
7.956
1.963
69.228
1,414.114
21.64
SE
69,665.980
4.089
52.618
3.824
0.698
17.659
2.658
65.250
969.514
38.35
TR
21,421.190
10.289
35.919
8.683
0.944
5.560
7.504
71.211
1,345.982
30.84
US
25,608.510
8.982
61.202
0.766
1.399
16.367
4.132
58.885
807.796
33.65

29
Table 2: Determinants of Non-Interest Income Ratio
(Bank-Year Pooled OLS Regressions, Lagged Independent Variables)
Non-Interest Income Ratio
Non-Interest Income Ratio
Log Assets (-1)
4.373
4.420
(10.72)***
(11.95)***
Equity-Asset Ratio (-1)
0.266
0.352
(2.03)**
(2.49)**
Impaired Loan Ratio (-1)
0.799
0.697
(5.29)***
(5.44)***
ROA (-1)
6.364
6.643
(11.44)***
(11.77)***
Loan Ratio (-1)
-0.292
-0.293
(9.39)***
(9.82)***
Net Interest Margin (-1)
-1.328
-1.452
(4.31)***
(4.72)***
Cost-Income Ratio (-1)
0.333
0.365
(9.21)***
(10.64)***
GNI per capita (-1)
-40.364
(0.48)
Real GDP Growth (-1)
-0.576
(2.03)**
Real Interest Rate (-1)
0.383
(1.70)*
Inflation Rate (-1)
-0.401
(4.03)***
Market Cap / GDP (-1)
0.056
(3.86)***
Observations
2,664
2,660
Adjusted R-squared
0.19
0.18
Note: Country and year dummy variables were included but not reported. Absolute value of t-statistics is in parentheses. *
significant at 10%; ** significant at 5%; *** significant at 1%.

30
Table 3: Profitability and Risk Impact of Non-interest Income Ratio
(Bank-Period Pooled OLS Regressions)
Note: Country and period dummy variables were included but not reported. Absolute value of t-statistics is in parentheses. * significant at 10%;
** significant at 5%; *** significant at 1%.
ROA
SD
(ROA)
Equity-
Asset
Ratio
Z-Score
ROA
SD
(ROA)
Equity-
Asset
Ratio
Z-Score
ROA
SD
(ROA)
Equity-
Asset
Ratio
Z-Score
Log Assets
0.051
-0.057
-0.600
6.884
0.037
-0.045
-0.705
7.055
0.034
-0.055
-0.725
7.266
(2.18)**
(2.18)**
(7.75)***
(0.77)
(1.59)
(1.77)*
(8.69)***
(0.84)
(1.43)
(2.18)**
(8.90)***
(0.86)
Equity-Asset
Ratio
0.050
0.155
-1.015
0.090
0.119
1.865
0.089
0.116
1.913
(5.93)
***
(15.65)
***
(0.30)
(11.32)
***
(13.25)
***
(0.63)
(11.22)
***
(12.99)
***
(0.64)
Loan Ratio
0.007
-0.003
0.011
0.980
0.006
-0.003
0.030
0.656
0.007
-0.002
0.032
0.630
(4.32)***
(1.47)
(2.14)**
(1.61)
(4.30)***
(1.82)*
(5.75)***
(1.22)
(4.48)***
(1.02)
(6.11)***
(1.14)
Non-Int Income
Ratio
0.003
0.003
0.014
-0.351
0.002
0.003
0.018
-0.267
0.000
-0.003
0.005
-0.147
(2.39)**
(2.34)**
(4.00)***
(0.89)
(1.59)
(2.44)**
(4.70)***
(0.69)
(0.20)
(1.51)
(0.66)
(0.21)
Real GDP
Growth
0.183
-0.093
0.096
-9.707
0.186
-0.084
0.114
-9.892
(8.16)***
(3.86)***
(1.19)
(1.22)
(8.25)***
(3.47)***
(1.42)
(1.24)
Inflation Rate
-0.011
0.034
0.093
-0.792
-0.011
0.033
0.092
-0.786
(2.38)**
(6.74)***
(5.77)***
(0.48)
(2.40)**
(6.71)***
(5.71)***
(0.48)
Real Interest
Rate
-0.033
0.045
0.011
-5.682
-0.034
0.042
0.005
-5.618
(1.98)**
(2.52)**
(0.19)
(0.96)
(2.05)**
(2.34)**
(0.08)
(0.95)
Market Cap /
GDP
0.002
-0.001
0.015
-0.293
0.001
-0.004
0.008
-0.224
(2.89)***
(1.33)
(6.29)***
(1.16)
(0.69)
(3.55)***
(1.87)*
(0.53)
Market Cap /
GDP * Non-Int
Income Ratio
0.001
0.001
0.001
-0.002
(1.28)
(3.44)***
(2.27)**
(0.21)
Observations
1,257
1,174
1,257
1,167
1,257
1,174
1,257
1,167
1,257
1,174
1,257
1,167
Adjusted R-
squared
0.28
0.25
0.30
0.01
0.19
0.21
0.13
0.00
0.19
0.21
0.13
0.00

31
Table 4: Profitability and Risk Impact of Non-interest Income Ratio
(Bank-Period Pooled OLS Regressions, Lagged Independent Variables)
`
ROA
SD
(ROA)
Equity-
Asset
Ratio
Z-Score
ROA
SD
(ROA)
Equity-
Asset
Ratio
Z-Score
ROA
SD
(ROA)
Equity-
Asset
Ratio
Z-Score
Log Assets (-1)
-0.017
0.023
-0.092
-5.219
-0.083
0.022
-0.433
-5.080
-0.089
0.021
-0.445
-4.826
(0.56)
(1.13)
(1.05)
(1.93)*
(2.66)***
(1.15)
(4.63)***
(1.99)**
(2.83)***
(1.08)
(4.73)***
(1.88)*
Equity-Asset
Ratio (-1)
0.009
0.013
-1.742
0.038
0.010
-0.799
0.037
0.010
-0.745
(0.92)
(2.04)**
(1.99)**
(3.65)***
(1.63)
(0.96)
(3.53)***
(1.59)
(0.89)
Loan Ratio (-1)
0.006
0.004
0.015
0.041
0.008
0.005
0.040
0.078
0.008
0.005
0.041
0.047
(3.18)***
(2.75)***
(2.60)***
(0.24)
(3.89)***
(3.86)***
(6.72)***
(0.49)
(4.15)***
(3.87)***
(6.83)***
(0.29)
Non-Int Income
Ratio (-1)
0.002
0.002
0.006
-0.047
0.001
0.003
0.010
-0.070
-0.003
0.002
0.002
0.077
(1.25)
(2.67)***
(1.56)
(0.40)
(0.66)
(3.31)***
(2.28)**
(0.60)
(0.96)
(1.39)
(0.20)
(0.36)
Real GDP
Growth(-1)
0.038
0.044
0.068
-0.641
0.044
0.045
0.082
-0.894
(1.31)
(2.44)**
(0.75)
(0.27)
(1.51)
(2.49)**
(0.91)
(0.37)
Inflation Rate
(-1)
0.029
0.011
0.107
-0.430
0.029
0.011
0.106
-0.418
(5.58)***
(3.63)***
(6.71)***
(1.03)
(5.52)***
(3.61)***
(6.63)***
(1.01)
Real Interest
Rate(-1)
-0.015
0.012
0.005
-3.406
-0.017
0.011
-0.001
-3.284
(0.67)
(0.87)
(0.08)
(1.90)*
(0.78)
(0.83)
(0.01)
(1.82)*
Market Cap /
GDP (-1)
0.005
-0.002
0.019
0.073
0.003
-0.002
0.014
0.151
(5.02)***
(2.73)***
(6.72)***
(0.97)
(1.88)*
(2.09)**
(3.12)***
(1.25)
Market Cap
/GDP
* Non-Int Income
Ratio (-1)
0.001
0.001
0.001
-0.002
(1.58)
(0.50)
(1.22)
(0.83)
Observations
844
788
845
782
844
788
845
782
844
788
845
782
Adjusted R-
squared
0.29
0.07
0.35
0.02
0.12
0.06
0.14
0.01
0.12
0.06
0.14
0.01
Note: Country and period dummy variables were included but not reported. Absolute value of t-statistics is in parentheses. * significant at 10%;
** significant at 5%; *** significant at 1%.

32
Table 5: Profitability and Risk Impact of Non-Interest Income Ratio
(Bank Cross-section OLS Regressions)
ROA
SD(ROA)
Equity-
Asset
Ratio
Z-Score
ROA
SD(ROA)
Equity-
Asset
Ratio
Z-
Score
ROA
SD(ROA)
Equity-
Asset
Ratio
Z-
Score
Log Assets
0.045
-0.048
-0.414
24.768
0.029
-0.035
-0.586
22.391
0.028
-0.042
-0.583
21.886
(2.25)**
(1.56)
(4.50)***
(1.58)
(1.36)
(1.15)
(5.92)***
(1.47)
(1.29)
(1.39)
(5.86)***
(1.43)
Equity-Asset
Ratio
0.114
0.022
-0.848
0.141
0.006
4.604
0.141
0.007
4.656
(13.36)***
(1.68)*
(0.12)
(17.08)***
(0.54)
(0.77)
(17.08)***
(0.60)
(0.78)
Loan Ratio
0.003
-0.001
0.025
1.320
0.003
0.000
0.038
0.757
0.003
0.001
0.038
0.811
(2.45)**
(0.52)
(3.96)***
(1.22)
(2.27)**
(0.10)
(6.21)***
(0.78)
(2.34)**
(0.49)
(6.08)***
(0.82)
Non-Int Income
Ratio
0.003
0.005
0.017
-0.731
0.003
0.004
0.023
-0.796
0.001
-0.002
0.025
-1.229
(2.51)**
(2.90)***
(3.52)***
(0.87)
(2.26)**
(2.58)***
(4.28)***
(0.98)
(0.69)
(0.71)
(2.55)**
(0.83)
Real GDP
Growth
0.099
-0.028
0.179
-30.036
0.100
-0.018
0.176
-29.372
(4.19)***
(0.82)
(1.59)
(1.78)*
(4.22)***
(0.53)
(1.55)
(1.72)*
Inflation Rate
0.000
0.039
0.132
-1.006
0.000
0.038
0.132
-1.069
(0.07)
(6.81)***
(7.11)***
(0.35)
(0.10)
(6.67)***
(7.11)***
(0.37)
Real Interest
Rate
0.033
0.020
-0.207
35.302
0.033
0.012
-0.205
34.754
(1.33)
(0.55)
(1.72)*
(1.92)*
(1.30)
(0.33)
(1.71)*
(1.88)*
Market Cap /
GDP
0.002
0.000
0.010
-0.351
0.002
-0.004
0.012
-0.614
(3.13)***
(0.32)
(3.10)***
(0.69)
(1.27)
(1.94)*
(2.01)**
(0.68)
Market Cap /
GDP
*Non-Int Income
Ratio
0.001
0.001
0.001
0.006
(0.65)
(2.55)**
(0.29)
(0.35)
Observations
654
637
654
636
654
637
654
636
654
637
654
636
Adjusted R-
squared
0.50
0.13
0.33
0.00
0.40
0.09
0.17
0.01
0.40
0.10
0.17
0.01
Note: Country dummy variables were included but not reported. Absolute value of t-statistics is in parentheses. * significant at 10%; **
significant at 5%; *** significant at 1%.

33
Table 6: Homogeneity in Bank Revenue Structure and Macroeconomic Volatility
(Country Cross-section OLS Regressions)
SD(Inflation
Rate)
SD(Real
GDP
Growth)
SD(Market
Cap / GDP)
SD(Real
Interest
Rate)
SD(Inflation
Rate)
SD(Real
GDP
Growth)
SD(Market
Cap / GDP)
SD(Real
Interest
Rate)
Inflation Rate
0.672
0.035
0.181
0.161
0.591
0.003
0.830
0.025
(16.42)***
(1.43)
(0.36)
(6.15)***
(8.47)***
(0.04)
(0.53)
(0.27)
Real GDP Growth
0.211
0.231
-0.240
0.293
0.032
0.219
-3.348
0.243
(1.07)
(1.98)*
(0.10)
(2.33)*
(0.13)
(1.83)*
(1.40)
(1.74)*
Real Interest Rate
0.056
-0.136
-0.138
0.089
0.021
-0.138
0.913
0.088
(0.26)
(1.08)
(0.05)
(0.66)
(0.09)
(1.20)
(0.40)
(0.64)
Market Cap / GDP
-0.005
-0.001
0.257
-0.005
0.004
-0.008
0.281
-0.009
(0.86)
(0.36)
(3.57)***
(1.40)
(0.46)
(1.73)*
(4.35)***
(1.70)*
AVG(Non-Int
Income Ratio)
0.032
-0.001
0.483
-0.002
0.045
-0.015
0.586
-0.016
(1.16)
(0.07)
(1.43)
(0.09)
(1.50)
(0.87)
(1.95)*
(0.84)
SD(Non-Int Income
Ratio)
-0.099
0.020
-0.133
-0.002
-0.103
0.027
-0.579
0.018
(3.09)***
(1.07)
(0.34)
(0.10)
(3.06)***
(1.26)
(1.43)
(0.73)
SD(Inflation Rate)
0.030
-2.618
0.195
(0.24)
(1.14)
(1.45)
SD(Real GDP
Growth)
0.104
9.784
0.056
(0.24)
(2.54)**
(0.21)
SD(Market Cap /
GDP)
-0.024
0.026
0.017
(1.14)
(2.54)**
(1.30)
SD(Real Interest
Rate)
0.509
0.042
4.778
(1.45)
(0.21)
(1.30)
Observations
29
29
29
29
29
29
29
29
Adjusted R-squared
0.97
0.57
0.4
0.87
0.97
0.65
0.56
0.88
Note: Absolute value of t-statistics is in parentheses. * significant at 10%; ** significant at 5%; *** significant at 1%.

34
Figure 1: Return on Average Assets (Period Means in %)

35
Figure 2. Non-Interest Income Ratio (Period Means in %)

36
Figure 3: Decomposition of Net Operating Revenue (2002-2006 Mean in %)

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