The Effects of Business Model on Bank's Stability

The literature shows little evidence of the effects of business models upon the volatility of banks in developing and fast-growing economies. Hence, this study examines the effects of business model choice on the stability of banks in ASEAN countries. Using GMM and other robust econometric methods on the sample of 99 joint stock commercial banks, we find significant and negative impacts of a diversification model in which banks shift toward non-interest and fees-based activities. We also find that the impacts are different between two groups of countries. For Vietnam, Indonesia and the Philippines, the diversification entails negative impacts on stability while demonstrating positive impacts for Thailand and Malaysia. Based on these findings, we draw policy implications for more sustainable development in the ASEAN banking business.