Bank risk shifting and diversification in an emerging market

Jonathan A. Batten*, Xuan Vinh Vo

*Corresponding author for this work

Research output: Contribution to journalArticle

21 Citations (Scopus)

Abstract

This paper investigates risk shifting in commercial banks in the emerging market of Vietnam, where banks fund domestic asset portfolios almost exclusively from deposits and with limited issuance of securities. We investigate the relationship between these banks' income diversification strategies and their overall level of risk during the recent period of deregulation and global financial crisis. Our results show that those commercial banks that have shifted to non-interest income activities in fact face higher levels of risk. This finding is at odds with theories that argue that diversification is a strategy for risk reduction and has broader implications for domestic system stability. The analysis provides a framework for evaluating these issues in other emerging markets.

Original languageEnglish
Pages (from-to)217-235
Number of pages19
JournalRisk Management
Volume18
Issue number4
DOIs
Publication statusPublished - 1 Dec 2016
Externally publishedYes

Keywords

  • bank risk
  • diversification
  • interest income
  • non-interest expense
  • non-interest income
  • Vietnam

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