NON-INTEREST INCOME FINANCIAL PERFORMANCE & THE MACROECONOMY: EVIDENCE ON JAMAICAN PANEL DATA

Author(s): Bailey-Tapper, Sherene; (2012)

Created 23 Jul, 2012
Categories Working Papers
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This paper demonstrates the empirical inter-linkages between non-interest income, financial performance and the macroeconomy by applying a SUR model to Jamaican panel data for the period March 1999 to September 2010. The study also investigates the determinants of non-interest income in a context of the increasing reliance by banking institutions on revenue generation from non-interest income activities. ATM technology, personal lending and loan quality are among the main microeconomic factors driving the performance in non-interest income in the commercial banking sector. Regarding the macroeconomic environment, interest rate and foreign exchange rate volatility are the key factors which explain the performance in non-interest income. Against this background, stronger performance in non-interest income not only leads to increased profitability but also increased variability in performance. Additionally, results for large banks show that lower earnings on investments lead to increases in service charges from loans and may reflect more aggressive loans expansion by these increase institutions to increase fee income. Moreover, lower earnings on investments also contribute to increases in ‘Other’ service charges by the larger banks and may reflect the need for greater competition, particularly in the low interest rate environment of the post-Jamaica Debt Exchange (JDX) period.

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