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Non-Interest Income: Are Australian Banks Moving Away from their Traditional Businesses?

Authors


  • The authors wish to acknowledge support provided by Dr Katrina Ellis and Dr Bruce Arnold of Australian Prudential Regulation Authority.

Correspondence: Sarath Delpachitra, Flinders Business School, Flinders University, Adelaide, SA 5000, Australia. Email: s.delpachitra@flinders.edu.au

Abstract

Changes in operating environments have led banks to lighten their reliance on conventional model of banking and create diversity. Whether such diversity in banking operations changed the risk- return profile of the industry and the traditional focus of financial intermediation are the empirical questions investigated. Further this study examined whether access to sophisticated financial instruments by the major banks has impacted the competitiveness and performance banking tiers. The results suggest that, overall, non-interest income and revenue diversifications reduced profitability and did not improve the overall default risk of banks and any further expansion into non-interest income activities would not benefit banks.

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