Non-traditional banking activities in ASEAN-5 countries

Abstract

There has been a gradual change in commercial bank businesses that has reshaped the landscape of banking and financial systems across the globe including in Southeast Asia. The present study seeks to find the determinants of non-traditional activities and how these new activities impact the performance of commercial banks’ in ASEAN-5 countries namely Indonesia, Malaysia, Singapore, the Philippines and Thailand. Additionally, the issue of Islamic banks and the 2008 Global Financial Crisis are also investigated. Data from 136 commercial banks data were collected for the period between 2004 and 2012. The results of panel data regressions suggest a negative association between non-traditional and traditional activities. In view of this, combining the two activities in a portfolio of bank assets can minimise portfolio risks. Moreover, two sources of income namely income from non-traditional and traditional activities are positive and significantly influence the profitability indicators. We also found evidence that source of income contributes to higher probability of insolvency risk. In other words, non-traditional banking activities have a potential to substitute traditional banking activities. Islamic banks exhibit a lower level of non-traditional income ratio compared to their conventional peers. Finally, we found that the 2008 Global Financial Crisis significantly affected non-traditional activities and moderately impacted the profitability of commercial banks.