Effects of Non-Interest Income Diversification on Stock Return and Risk of Thai Commercial Bank in the Stock Exchange of Thailand

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Wiroj Phaiboonvessawat
Sorasart Sukcharoensin

Abstract

The purpose of this study is to expand the empirical study results on the impact of non-interest income distribution to the return and risk of banks of a group of 10 commercial banks that are listed on the Stock Exchange of Thailand over the period of 19 years from 1997-2015. From the empirical study, it is found that the bank's adjusted non-interest revenues have increasing pattern and there is a positive relationship between non-interest revenues and profitability. In addition, it is found that the increasing trend of the proportional income from commission fees and the income from various investments lead to a reduction in the risk-adjusted rate of return of the banks. Especially, when the commercial banks adjust the distribution index by depending too much on non-interest revenues (over-diversification) will negatively affect the risk-adjusted rate of return.

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