The impact of efficiency and income diversification on performance of commercial banks: evidence from Sub-Saharan African countries

In recent years, the necessity of studying efficiency and income diversification in the banking sector is marked by various factors such as, increasing financial institutions uncertainties and rapid technological changes. Enhancing efficiency is vital for reducing costs and maximizing profitability, while income diversification helps mitigate risk and stabilize earnings amid economic fluctuations. In emerging financial sectors like Sub-Saharan Africa, understanding these factors is essential for fostering financial resilience and stabil Thereforhis study investigates the impacts of efficiency and income diversification on the performance of commercial banks in Sub-Saharan African countries. It utilizes financial data from 35 commercial banks in Sub-Saharan Africa (SSA), sourced from World Bank development indicators and global financial databases. The study adopted Return on Assets (ROA) and net interest margin (NIM) as commercial bank performance measures. Operational efficiency, allocative efficiency, and income diversification were utilized as the independent variables, and the two-step Generalized Method of Moments (GMM) was employed for estimation. Findings indicate that enhancing operational efficiency positively affects ROA and NIM, while effective resource allocation fosters allocative efficiency, enabling better services and informed investment decisions. Additionally, income diversification significantly boosts both ROA and NIM by providing multiple revenue streams that mitigate risk. The study recommends that banks improve profitability by prioritizing two key areas: enhancing operational efficiency and pursuing income diversification. For future researchers, it is suggested to undertake thorough investigations into successful digital transformation projects within the banking sector of Sub-Saharan Africa, focusing on identifying replicable models that promote operational efficiency and income diversification.