THE ROLE OF INTEREST INCOME AND NONINTEREST INCOME ON THE PERFORMANCE OF FOUR LARGE SOUTH-AFRICAN BANKS
THE ROLE OF INTEREST INCOME AND NONINTEREST INCOME ON THE PERFORMANCE OF FOUR LARGE SOUTH-AFRICAN BANKS

Summary/Abstract: Over the past decade, there has been an increase in the contribution of non-interest income, relative to interest income, to the total income of banks. This paper investigates the effect of this shift in income on the efficiency and profitability of the banks. Data Envelopment Analysis (DEA) in conjunction with profitability ratios is used to estimate and compare the performance of the four largest Banks in South Africa over a period of ten years. There is evidence that non-interest income may lead to higher efficiency, but mixed results were found with regard to profitability. The practical implication of this study is that banks should focus more on non-interest income as a source of income as a result of its multidimensionality, while interest income is only single dimensional as a result of the fixed gap between the Repo rate set by the South African Reserve Bank and the prime interest rate.

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