Abstract
M.Com. (Finance)
Banking in emerging markets has recently seen a decline in traditional interest earning activities towards newer diversified business strategies that yield noninterest revenue. This change has been provoked by numerous factors, the most prevalent being the rate of technological and structural advancement as well as the heightened post-financial crises focus on mitigating interest rate risk and credit risk exposure.
This study investigated whether the observed shift into activities that generate noninterest revenue (NIR) rather than net interest income (NII), improves financial performance. Previous research in this regard offers varying results across the globe and is specifically limited for the South African context. The results of this study aims to close the gap and thereby influence decision and policy makers within the South African banking industry to strategise appropriately taking into account the significant drivers of financial performance.
Secondary data was obtained for a sample of four of South Africa’s largest banks, for periods both before and after the 2007/8 financial crisis. A quantitative research inquiry approach was followed incorporating both regression and correlation analysis. The results found that banks with higher NIR to gross revenue percentages exhibit better performance and that NIR is largely a significant determinant of that performance. NIR was also found to exhibit negative correlation to NII, emphasising the credibility of NIR as a means of diversification for South African banks.