Journal
FINANCE RESEARCH LETTERS
Volume 43, Issue -, Pages -Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.frl.2021.101957
Keywords
Banks; noninterest income; COVID-19; profit; Risk
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The study shows that during the COVID-19 pandemic, banks diversifying into noninterest revenue sources can improve performance while reducing risk.
Banks can potentially reduce the variability of their revenue by diversifying beyond traditional lending activities into noninterest revenue sources. We investigate the effect of the COVID-19 pandemic on the relation between the use of noninterest income and bank profit and risk. The economic effect of the pandemic resulted in tightened credit standards and reduced demand for many types of loans. We find that noninterest revenue sources are positively related to performance but inversely related to risk. These results are consistent with a beneficial diversification effect during the pandemic from banks expanding beyond traditional lending sources of revenue.
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