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Income Diversification and Banks’ Profitability from an African Market Perspective: A Relief for SMEs?

  • Isaac Boadi
Chapter
Part of the Palgrave Studies of Entrepreneurship in Africa book series (PSEA)

Abstract

The financial sectors in many African countries have witnessed some regulatory changes and financial reforms in the early 1990s. These reforms have shifted the focus to the generation of non-traditional income. Notwithstanding, the empirical evidence on the impact of income diversification on banks’ profitability in Africa banking markets appears inadequate. The study employs a panel data of 584 banks and well-functioning internationally active banks with various specializations headquartered in 50 African countries spanning from 2001 to 2013. Empirical results document a negative relationship between income diversification and banks’ profitability. This implies that diversified banks in Africa are less profitable. Further, although the study invalidates a non-linear relationship between income diversification and banks’ profitability, the findings indicate that income diversification has a diminishing marginal impact on banks’ profitability. Thus, the nexus between income diversification and bank diversification is linear in African banking environment.

Keywords

Banks’ profitability Diversification Non-linearity Africa 

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Authors and Affiliations

  • Isaac Boadi
    • 1
  1. 1.School of ManagementOpen UniversityHeerlenThe Netherlands

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