The determinants of non-interest income and financial performance of commercial banks in Botswana

Abstract

The main objective of this study is to investigate the determinants of non-interest income in Botswana’s commercial banks and its association with the financial performance. An empirical analysis is conducted to determine the impact of technological development, bank characteristics and macroeconomic factors on the non-interest income of commercial banks. The study applied an SUR model to panel data for Botswana’s largest three commercial banks for the period 2000 to 2014. The main findings are that GDP growth, inflation, ATM development and Equity asset ratio are negatively related to non-interest income. Bank size and one-period lag of ROA, on the other hand, are positively associated with non-interest income in Botswana’s commercial banks. However, the coefficients on these variables are statistically insignificant, except in the case of inflation. The empirical results also indicate a negative relationship between noninterest income and financial performance of commercial banks in Botswana. The study recognizes that the attempt of commercial banks to venture into non-interest income activities does not by any means replace their traditional interest income as the main source of revenue but only complements. Hence, the financial performance of banks still depends on the interest income activities