Income Diversification and Profitability in Iranian Banking System

Non-interest income affected the profitability and risk of the banks into the banking system. Most of the Iranian banks expanded the Noninterest income with the economic condition change in the country. Non-interest income has positive effects on banks’ profitability and negative effects on banks’ risk. Moreover, Quantity of these effects depends on the size and type of banking business models. Furthermore, Non-interest income effects on banks are influenced by the type of bank's activities and their risk strategies. The banks for profit making behave differently to changes in interest income. Maybe, some banks tend to lend to the private sector or housing sector. This strategy can reduce the risk of lending for banks.In this paper, we investigate the Non-interest income effect on the bank's profitability. For this purpose, Panel data method is used to examine this relationship with 25 bank data during the 2006-2013. The results show that non-interest income has a positive effect on banks’ profitability and negative effects on banks’ risk. While Interest income is less stable than Noninterest income. The banking system often allocated the resources to interest income and share of non-interest income is lower.