Income Diversification and Financial Stability of Banks in Ghana
Damankah Basil Senyo, Anku-Tsede Olivia, Abubakar Musah, Eliasu Nuhu
Abstract
The conventional wisdom in the banking industry is that earnings from fee-based products are more stable than
loan-based earnings, and that fee-based activities reduce bank risk via diversification. This paper considers the
income diversification in the Ghanaian banking sector by analyzing the relationship between non-interest income
and profitsof banks from the year 2002to 2011 and also considers the risk associated with bank income
diversification. The study found that interest income remains the highest contributor to bank profits in Ghana. It
was also found that revenue from non-interest sources play an augmenting role in times where there are short
falls in interest revenue. This conclusion has implications for regulators interested in the stability of the banking
sector, investors interested in the performance of individual banks or the entire banking/financial sector and bank
borrowers who may depend on the health of specific banks for the stable provision of credit.
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