Moving Toward Non-Interest Income for Banking Sustainability: A Case Study on Determinants of Non-Interest Income of CIMB Bank and RHB Bank
Keywords:Non-interest income, Banking sustainability, Malaysia, Diversification, Volatility
This study seeks to analyse the determinants of non-interest income for CIMB Bank and RHB Bank in Malaysia. A comparative analysis between CIMB Bank and RHB Bank was conducted covering the years 2004 till 2015.This research is important to increase the banks’ non-interest income revenue or encourage banks to diversify into non-interest income whenever their interest income is threatened. By employing time series analysis techniques such as Vector Error Correction Model (VECM), Johansen Co-Integration Analysis and Forecast Error Variance Decomposition (FEVD) Analysis to identify the relationship among variables in the short run and long run, this study finds that each bank has its unique determinants of non-interest income. Both in the long run and short run the determinants of non-interest income differ between CIMB Bank and RHB Bank. These findings further suggest the potential of non-interest income as a revenue source for banks (both conventional and Islamic). For conventional banks, non-interest income will not make the banks worse off and for Islamic banks, eschewing interest will also make them as competitive as their conventional counterparts. These findings can be useful for the banks to identify the significant variables to increase their non-interest income or revenue.
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