Impact of asset and income diversification on the stability of domestic universal banks in the Philippines for the years 2001-2012

• Main Authors: Casanas, Harold Jefferson A., Mendoza, Alyanna Louisee D., Santioque, Julie Ann G.
• Format: text
• Language: English
• Published: Animo Repository 2014
• Subjects: Universal banks > Philippines; Banks and banking > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/8574
• Institution: De La Salle University

As a result of the financial crises occurring over the years, financial soundness has been a growing concern especially for banks. Given issues revolving around liquidity and solvency, banks have been more assertive towards implementing strategies contributing to financial stability. One of the strategies that banks currently use is diversification. Inspired by the concept of diversification, this study was conducted to determine the impact of asset and income divesification on the stability of domestic universal banks int he Philippines. Bank stability was measured using the Z score that contains information on overall financial stability of a bank. Given data coming from nine domestic universal banks for a period of twelve years, the group employed panel data estimation procedures to evaluate the effect of asset and income diversification to the stability of domestic universal banks. Results of the study highlighted two main points: first was how asset diversification and increasing banks' exposure to non-loan earnings assets have a positive effect to bank stability. Second was though income diversification has a positive effect to bank stability, banks are encouraged to leverage more on interest earning activities due to the negative effect of fee-based banking services to bank stability.