Exploring the influence of revenue diversification on financial performance in the banking industry

Abstract

PurposeThe purpose of this study is to review the literature related to the influence of revenue diversification on banking sector performance. Further, the determination of the scope and the empirical estimation of the revenue diversification is also the area of investigation to synthesis with future research area.Design/methodology/approachThe systemic literature review process used by Opoku et al. (2015) is applied. In total, 68 Journal articles are studied after applying specified review protocols. The information gathered from the selected articles is presented and summarized in specified tables and charts formats for easy understanding.FindingsThe comprehensive literature review showed that much of the work in this area is done in the USA and the Asian region. To explore the impact of revenue diversification on banking performance in developing countries is a literature gap. While going through the existing literature, it is clear that researchers have not reached at any conclusion about the exact impact of revenue diversification on banking performance. It is also found that non-interest income ratio and Herfindahl-Hirschman index (HHI) (revenue) index are the most common proxies of revenue diversification. However, other studies also input the HHI (loans) index, number of ATM’s and number of branches as a proxy for diversification.Research limitationsThis systematic literature review is based on specific review protocols, and therefore, it might be possible that some of the important work is not included in it due to time restrictions.Originality/valueThe banking sector has shown tremendous growth in revenue sources in past two decades. Keeping in view the importance of the banking sector within an economy, the dramatic shift of revenue sources and their impact is important to determine that eventually will help to define the future research area. In past research studies, there exists clear disagreement about the possible impact of revenue diversification on banking performance. This systemic literature review is an attempt to draw conclusions about the exact impact of revenue diversification. Therefore, the outcome of the study will be very valuable for both banking practitioners and academicians.