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Bank Business Models in Southeast and East Asia: Implications for Stability

Jongsaliswang, Metinee

[Thesis]. Manchester, UK: The University of Manchester; 2013.

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Abstract

This research aims to understand the effect of business models in the Asian banking industry during the most recent financial crisis, and to identify effective banking business models for the post-crisis landscape. This research was based on observations about the importance of the bank business model for reaching bank stability, as well as a lack of research that focuses on Southeast and East Asia. Its main originality is in the application of existing stability models to banks in Asia, which has rarely been tested. The research uses an econometric approach, with several methods selected (including pooled OLS, robust fixed effects, and time fixed effects) on base models. Three hypotheses were posed, tested conditions of bank stability related to diversification strategy, use of interest and non-interest income, and strength of the bank balance sheet indicators. Bank performance was modelled using seven indicators grouped in three categories (Stability, Performance, and Stock returns). The outcome of testing variables was mixed. Diversification was shown to have a nonlinear effect on bank outcomes in most cases. However, excessive diversification could be harmful. Similar results were found for the effect of Interest and Non-interest income on the indicator outcomes. The third test showed that the Cost-to-income ratio and Total assets were key balance sheet indicators, but other variables tested were not significant. Overall, the findings of the research imply that banks do need to consider their business models, since these do affect performance of the bank in economic crisis situations and overall bank stability. Also, it can be concluded that the traditional relationship banking with strong balance sheet and effective risk management system is the most appropriate model in Southeast and East Asia.