Do Bank Funding Diversity and Bank Lending Affect Net Interest Margins? Evidence From Asia Markets Before and During the Covid-19 Pandemic

• Published in: SAGE open 2023-10, Vol.13 (4)
• Main Authors: Duong, Khoa Dang, Le, Hoi Vu, Vu, Duy Nhat, Le, Ai Ngoc Nhan
• Format: Article
• Language: English
• ISSN: 2158-2440; 2158-2440
• DOI: 10.1177/21582440231214044

This paper investigates how bank funding diversity and lending affect bank performance, especially during the Covid-19 pandemic. We employ the Generalized Method of Moments to analyze unbalanced panels of commercial banks in China, Taiwan, and Vietnam. The empirical results show that a percentage increase in bank funding diversity and bank lending in the sample negatively affects profitability. In contrast, the results are mixed in each country due to different market microstructures. While holding diversified funding strengthens bank profitability during the pandemic, increasing lending activities dampers the bank’s performance. Finally, this research has important implications for bank managers and regulators to develop sustainable banking performance in emerging markets, especially during pandemics. Plain Language Summary This paper investigates how bank funding diversity and lending affect bank performance, especially during the Covid-19 pandemic. We employ the Generalized Method of Moments to analyze unbalanced panels of commercial banks in China, Taiwan, and Vietnam. The empirical results show that a percentage increase in bank funding diversity and bank lending in the sample negatively affects profitability. In contrast, the results are mixed in each country due to different market microstructures. While holding diversified funding strengthens bank profitability during the pandemic, increasing lending activities dampers the bank’s performance. Finally, this research has important implications for bank managers and regulators to develop sustainable banking performance in emerging markets, especially during pandemics.