Commenced in January 2007
Frequency: Monthly
Edition: International
Paper Count: 30831
Net Fee and Commission Income Determinants of European Cooperative Banks

Authors: Matej Kuc, Karolína Vozková


Net fee and commission income is one of the key elements of a bank’s core income. In the current low-interest rate environment, this type of income is gaining importance relative to net interest income. This paper analyses the effects of bank and country specific determinants of net fee and commission income on a set of cooperative banks from European countries in the 2007-2014 period. In order to do that, dynamic panel data methods (system Generalized Methods of Moments) were employed. Subsequently, alternative panel data methods were run as robustness checks of the analysis. Strong positive impact of bank concentration on the share of net fee and commission income was found, which proves that cooperative banks tend to display a higher share of fee income in less competitive markets. This is probably connected with the fact that they stick with their traditional deposit-taking and loan-providing model and fees on these services are driven down by the competitors. Moreover, compared to commercial banks, cooperatives do not expand heavily into non-traditional fee bearing services under competition and their overall fee income share is therefore decreasing with the increased competitiveness of the sector.

Keywords: system GMM, cooperative banking, dynamic panel data models, net fee, commission income

Digital Object Identifier (DOI):

Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1369


[1] L. Lepetit, E. Nys, P. Rous, A. Tarazi, “Product diversification in the European banking industry: Risk and loan pricing implications,” Working paper series, 2005 (online). Available at: or (Accessed 1.8.2016).
[2] P. E. Davis, K. Tuori, “The Changing Structure of Banks’ Income – An Empirical Investigation,” Department of Economics and Finance Research Papers, Brunel University, 2000.
[3] B. Williams, G. Rajaguru, “The chicken or the egg? The trade-off between bank fee income and net interest margins,” Australian Journal of Management, Vol. 38, No. 1, pp. 99-123, 2013.
[4] ECB, “EU banks’ income structure”, 2000 (online). Available at: (Accessed 14.2.2015).
[5] F. Moshirian, S. Sahgal, B. Zhang, “Non-interest Income and Systematic Risk: The Role of Concentration,” Australian School of Business, University of New South Wales, 2011 (online). Available at: (Accessed 22.10.2016).
[6] K. Ruzickova, P. Teply, “Determinants of banking fee income in the EU banking industry - does market concentration matter?” IES Working Paper 4/2015, IES FSV, Charles University, 2015.
[7] K. Rogers, J. F. Sinkey, “An analysis of nontraditional activities at U.S. commercial banks,” Review of Financial Economics, Vol. 8, No. 1, pp. 25–39, 1999.
[8] M. Firth, W. Li, S. S. Wang, “The growth, determinants, and profitability of non-traditional activities of Chinese banks,” The European Journal of Finance, 2013 (online). Available at: (Accessed 26.1.2016).
[9] R. DeYoung, W. C. Hunter, “Deregulation, the Internet, and the Competitive Viability of Large Banks and Community Banks,” The Future of Banking, ed. Benton Gup, Westport, CT, Quorum Books pp. 173–202, 2003.
[10] R. DeYoung, W. C. Hunter, G. F. Udell, “Whither the community bank? What we know and what we suspect,” Journal of Financial Services Research, Vol. 25, pp. 81–94, 2004.
[11] R. DeYoung, T. Rice, “Noninterest Income and Financial Performance at U.S. Commercial Banks,” The Financial Review, Vol. 39, pp. 101–127, 2004.
[12] S. Shahida, L. Abd. Ghafar, A. Sanep, “A Panel Data Analysis of Fee Income Activities in Islamic Banks,” Islamic Econ., Vol. 19, No. 2, pp: 23–35, 2006.
[13] R. Busch, T. Kick, “Income Structure and Bank Business Models: Evidence on Performance and Stability from the German Banking Industry,” Schmalenbach Business Review 67, pp. 226-253, 2015.
[14] J. G. Kim, Y. J. Kim, “Noninterest income and financial performance at South Korea banks,” 2010 (online). Available at: (Accessed 4.2.2015).
[15] J. H. Hahm, “Determinants and Consequences of Non-Interest Income Diversification of Commercial Banks in OECD Countries,” Journal of International Economic Studies, Vol. 12, No. 1, 2008.
[16] R. Ayadi et al., “Investigating Diversity in the Banking Sector in Europe: Key Developments, Performance and Role of Cooperative Banks,” Centre for European Policy Studies, Brussels, 2010.
[17] E. Liikanen et al. “High-level Expert Group on reforming the structure of the EU banking sector, European Commission, Brussels, 2012.
[18] J. M. Wooldridge, “Econometric Analysis of Cross Section and Panel Data,” MIT Press, Cambridge, 2002.
[19] S. Nickell, “Biases in Dynamic Models with Fixed Effects,” Econometrica, Vol. 49, No. 6, pp. 1417–1426, 1981.
[20] S. Bond, “Dynamic Panel Data Models: A Guide to Micro Data Methods and Practice,” Working Paper, Cemmap, 2002.
[21] D. Holtz-Eakin, W. Newey, H. S. Rosen, “Estimating Vector Autoregression with Panel Data,” Econometrica, Vol. 56, No. 6, pp. 1371–1395, 1988.
[22] M. Arellano, S. Bond, “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,” Review of Economic Studies, Vol. 58, pp. 277–297, 1991.
[23] R. Blundell, S. Bond, “Initial conditions and moment restrictions in dynamic panel data models,” Journal of Econometrics, Vol. 87, pp. 115–143, 1998.
[24] D. Roodman, “How to Do xtabond2: An Introduction to “Difference” and “System” GMM in Stata,” Working Paper, No. 103, Centre for Global Development, 2006.
[25] F. Windmeijer, “A finite sample correction for the variance of linear efficient two-step GMM estimators,” Journal of Econometrics, Vol. 126, pp. 25–51, 2005.