Noninterest income mix and bank performance: Generalized propensity score fractional dose-response function evidence

This paper investigates the impact of different levels of noninterest income on the risk-adjusted profitability and financial stability of banks in the Middle Eastern and North African banking industry from 1988 to 2020. We apply a program impact evaluation analysis, using the gener-alized propensity score-fractional dose-response function method, and assess the effect of each level (or dose) of noninterest income mix on bank performance (the dose-response function). Splitting the sample into Gulf Cooperation Council-and non-Gulf Cooperation Council-based banks reveals that while higher levels of revenue diversification are beneficial for the former, a focus on traditional banking activities is preferable for the latter to achieve the best performance. The findings could serve as an early warning flag for bank managers, policy-makers, and regu-lators in dealing with these strategic shifts.