Banks have two sources of income. They earn interest income from
traditional bank services such as credits. They also make non-interest income
by charging their customers fees in exchange for various financial services
such as checking and cash management, safe-keeping services, investment
services, and insurance services. The Covid-19 crisis influenced not only the
level of bank revenues, but also their composition. The share of interest
income to non-interest income has shown a substantial decrease. This article
analyzes the origins of this change and its implications for the banking system
for the post-Covid environment. While the literature analyzing income shares
only looks at the supply factors, this paper introduces the demand-side factors
and finds that the demand-side factors were more important. The deterioration
in consumer sentiment has been found to be among the significant determinants
of this change. Finally, we find that the income structure of banks of
different sizes are determined by different sets of factors.
JEL classification numbers: G18, G21, G28.
Keywords: Commercial Banks, Interest income, Non-interest income,
Consumer sentiment, Bank size, Covid-19.