Income Structure, Profitability and Stability in the Tunisian Banking Sector

Abstract

This study examines the effect of revenue diversification across and within interest and non-interest income on bank stability and performance in Tunisian banks over the period 2001-2014. Using panel estimations and instrumental variables approach to handle the endogeneity problem of diversification variables. We find that revenue diversifications among and within interest and non-interest revenue generating operations boost bank profitability and stability. Our findings suggest also that the benefits from diversification are largest for banks with more shifts to nontraditional banking business lines (investment banking) while, absent for banks which follow cross-selling strategies of financial services.