Is income diversification beneficial for Thai banking?

The purpose of this article is to investigate how income diversification influences bank profitability (ROA) and risk-adjusted profitability (LNZ-index) for nine Thai commercial banks using panel data regression and the generalized method of moments (GMM). Because of its more robust results, our primary model is one-step GMM. All data was gathered from publicly available financial reports between 2003 and 2019. This study also examines the impact of this diversification on large banks and the crisis period. The current results show that income diversification increases bank profitability. This finding is consistent with the findings of Chiorazzo, Milani, and Salvini (2008) and Meslier, Tacneng, and Tarazi (2014). Fee income (FEE) and trading income (TRAD) in particular considerably improve bank profitability under all conditions. However, other non-interest income (OTHER) may not yield considerable gains until after the 2008 financial crisis. Nevertheless, the benefit can be cancelled out if we adjust its risk. Furthermore, we discover that bank size, equity-to-asset ratio, deposit-to-asset ratio, loan-to-asset ratio, and post-crisis dummy all have a substantial impact on bank performance. Nonetheless, there is no significant interaction between income diversification and major banks (InteractL) and GDP growth rate.