Empirical evidence on bank market power, business models, stability and performance in the emerging economies

peer reviewedThis paper studies the nexus between banks’ market power and business model represented by non-interest income and non-deposit short-term funding share. We also examine the impact of bank business model on banking stability and performance. We use a sample made up with six ASEAN country banking sectors from 2002 to 2015. We find that banks with a strong capital base but lower net interest margin perform better in translating their market power to generate non-traditional income as alternative soruce of revenues. Our findings also show that the implementation of Basel 2 Accord encourages banks to create non-interest income from trading & derivatives activities. We also document that banks with higher market power tend to increase non-deposit short-term funding in their banking scheme. In the evaluation of the banking stability, our results suggest that banks with greater non-traditional income are associated with less banking overall risk. Moreover, non-traditional incomes also contribute to better bank performance