The effect of revenue diversification on bank risk and performance

Banks enable the transformation of savings into investments in the economy, increasing efficiency and productivity in the market and contributing to sustainable growth in the economy. While making these contributions, banks are exposed to various risks specific to their systematic and unsystematic banking activities in their activities in order to increase their performance. In order to avoid these risks, they try to achieve their activities not in one direction but in a multi-directional way, thus benefiting from the positive effects of diversification. The efforts of banks to increase their profits through diversification aim to increase performance and achieve sustainable profitability through product diversity and customer loyalty. In this context, determining the relationship between diversification and performance of banks, one of the building blocks of the economy, becomes important. In this context, the main purpose of the study is to examine the effects of diversification concept in banking on the risk and performance of banks. In this context, of the 27 commercial banks operating in Turkey 2005 / Q1-2019 / Q3 is made from three cointegration test using monthly data and panel data analysis was performed using the coefficient forecasters. As a result of the analysis, a positive relationship was found between income diversification and bank performance and risk-adjusted bank performances. It was determined that non-interest income diversification reduces the risk of bankruptcy. On the other hand, there is no significant relationship between credit risk and banking risks and income diversification.