Income Diversification and Profitability in Selected Latin American Countries

Abstract

Due to global trends and increasing competition in the banking industry, banks are diversifying to non-intermediation activities. However, diversification of income may have implications for bank performance. We investigate the impact of bank income diversification on banks' profitability in Latin America. We take data from 7 Latin American nations (Argentina, Brazil, Chile, Colombia, México, Paraguay, Peru, and Venezuela) for the period of 2012-2022. Our results indicate that diversification improves bank profitability. Policymakers and bank managers should promote income diversification for the long-term sustainability of bank performance.