The role of revenue diversification on bank market power and bank stability: The case of selected publicly-listed commercial banks in the Philippines (2007-2012)

• Main Author: Hizon, Mariela Michaela F.
• Format: text
• Language: English
• Published: Animo Repository 2014
• Subjects: Banks and banking > Philippines; Revenue; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18488
• Institution: De La Salle University

This paper examines the association among revenue diversification, bank market power and bank stability in an intra-country setting using a sample of 11 commercial banks from the Philippines. This study has been conducted in line with the continuous widespread of financial liberalization worldwide, specifically in Asia since the beginning of its influence in the banking industries in the 1980s and 1990s. Activities related to the continuous liberalization of the banking sector include minimal government intervention, deregulation of interest rates, and entry of foreign banks in the local banking sector. With the use of the Arellano-Bover/Blundell-Bond dynamic model, the results show that banks' market power and their level of revenue diversification are not significantly associated with one another which disprove the simultaneous relationship between the two. On the other hand, revenue diversification has a negative yet significant correlation with bank stability which suggests that banks tend to be less stable when they diversify their sources of income. This paper finds that while high level of revenue diversification does not guarantee a high market power (and vice versa), a high level of revenue diversification suggests a tendency of bank instability.