Prague Economic Papers 2020, 29(2):226-248 | DOI: 10.18267/j.pep.720

The Impact of Fee Income Share on EU Banks' Performance and Its Implications for Drivers of Banks' Business Model Changes

Karolína Vozkováa
a Charles University in Prague, Institute of Economic Studies, Prague, Czech Republic

This paper contributes to the current literature dealing with drivers of bank business model changes. We analyse the relationship between fee and commission income share and banks' performance in terms of profitability, risk and risk-adjusted profitability in the European Union. We applied the System Generalized Method of Moments to a unique data set of 329 EU banks in the period 2005-2014, which resulted in three key findings. First, we did not find any diversification benefits by increasing the fee income share. Therefore, we can conclude that the increase in fee income share observed in recent years in EU banks was driven mainly by external factors, such as increased competition, rather than by internal reasons. Second, higher reliance on equity financing and better quality of provided loans enhance banks' performance. Third, bank business strategies and macroeconomic factors are crucial determinants of banks' performance.

Keywords: Bank, EU, fee and commission income, profitability, risk
JEL classification: C23, G21, L25

Received: June 21, 2018; Accepted: January 24, 2019; Prepublished online: December 20, 2019; Published: April 15, 2020  Show citation

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Vozková, K. (2020). The Impact of Fee Income Share on EU Banks' Performance and Its Implications for Drivers of Banks' Business Model Changes. Prague Economic Papers, 29(2), 226-248. doi: 10.18267/j.pep.720
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