Non-Interest Income and Profitability in Private Banking. Evidence from Liechtenstein

Abstract

Purpose – The aim of this article is to present results of research on the relation between non-interest income and bank’s profitability for Liechtenstein banks specialized in private banking.

Design/Methodology/Approach – The study examines 12 Liechtenstein banks specialized in private banking and wealth management services in the period from 2014 to 2016. Example of Liechtenstein has been chosen as the country is a significant European private banking centre. Data used in the research come from financial statements published by the banks. The relationship between profitability, presented as return on equity (ROE) and return on assets (ROA), and non-interest to interest income ratio has been examined by Pearson correlation coefficient.

Findings – Results show a negative correlation between non-interest to interest income ratio and ROA. No relevant correlation had been found between non-interest to interest income ratio and ROE.

Originality/Value – Most of the researchers investigating the relation between non-interest income and profitability of banks show opposite results to those presented in this paper. Available studies are concentrated on markets dominated by retail and corporate banking services generating mainly interest income. This paper treats the problem of non-interest income’s relation to banks’ profitability from the perspective of private banking, a specific branch of financial services focused on services generating earnings which are not based on interest-based products.

Article type – Research paper.