The impact of income diversification on the stability of listed Jordanian commercial banks during the COVID-19 pandemic

Abstract

This study investigates the impact of the COVID-19 pandemic on the relationship between income diversification and bank stability among Jordanian commercial banks listed on the Amman Stock Exchange (ASE), using a panel Autoregressive Distributed-Lagged Model (panel-ARDL) and quarterly data from 2015 to 2021. The findings demonstrate that during the COVID-19 period, a higher proportion of non-interest income, resulting from income diversification, enhances bank stability. However, considering the entire sample period, the results suggest a potential deterioration in bank stability when banks diversify towards non-interest income, aligning with the negative effect observed in the literature. Additionally, the study identifies factors such as bank size, liquidity, loan loss provisions, cost efficiency, and the deposit ratio, which influence bank stability. These findings hold significant implications for policymakers and banks in developing countries concerned about the impact of income diversification on bank stability. They also offer valuable insights to understanding the dynamics of income diversification and its implications for bank stability in the context of the COVID-19 pandemic.