In conclusion, non-interest income has assumed a more important role in commercial banking operations and it has been linked to improved bank financial health. We can conclude that the bank’s income is the net interest income plus non-interest income. Non-interest related income includes the net income earned from trading and derivatives and net income gains on other securities. The net fees and commissions and other operating income also consider as non-interest related income.
Non-interest income can increase the total level of income of commercial banks in several ways. First, this income can satisfy diversified needs for financial services, investment consultation, and so forth. They will continuously focus on the innovation of new financial products and services in order to gain more fees and commission and thus strengthen the market competitiveness.
Furthermore, bank can have a more diversified portfolio of revenue producing activities by adding non-interest income to a bank’s revenue stream that could reduce risk. However, they need to ensure that the changes in interest income are not associated with changes in the same direction and of the same magnitude for non-interest income to achieve an effective diversification. The degree to which two quantities are related to one another can be determined by measuring the correlation between them. They need to ensure the movements in net interest and non-interest income sources are essentially uncorrelated so that banks could be diversifying and hence becoming less risky.
An increase of non-traditional activities can translate into higher bank profitability as compared to an increase of lending activities due to the relatively less variable cost such as interest expenses. Based on the research, the non interest based income generating activities is quite recent topic in bank diversification as part of banking topic and discussion. There are many sides and perspectives that are very interesting to be explored. In the same time, there are no proper regulations imposed by the banking authority on how the banking institutions should manage their diversification activities. A further research on the comparison of other type of diversification and also further exploration on the bank diversification risk, might contribute significant knowledge to the banking industry stakeholders.
In conclusion, non-interest income able to stabilize revenue and profitability and thereby reduce risk in Malaysia. However, it is important to understand how bank maximize the gains from a diversified revenue portfolio since it will provide important information for successful risk management decision and future empirical work will try to sort out these alternative explanations and divergent outcomes.