Impact of Macroeconomic Factors on Bank's Fee Income : Evidence from Citibank in Taiwan Branch

Financial liberalization, internationalization and diversification have become a trend in global financial industry. Government accelerates the footsteps of financial liberalization to release numerous financial restrictions gradually due to strong demand for various financial products and service in the country. Domestic banks also tend to diversify the business types and innovate new financial products and service to meet the demand. The proportion of fee income to total revenues in banks arose and would become more expansive continually. It is an important issue to find out the major factors which determine the fee income of banks.
The paper employs the data from Citibank N.A., Taiwan branch, as a benchmark to represent the bank industry due to fee income is one of most outstanding banks in Taiwan, and also employs some major macroeconomic factors from Jan. ’96 to Jul. ‘09 to be the explanatory variables. By Granger causality, vector autoregressive model, cointegration test, multiple regression analysis, and numerous testing methods, the paper constructs an econometric model to predict the fee income of banks.
By empirical results, Central Bank Cash in Vaults, Total Asset of Securities Finance Companies, Trust Funds of Financial Institutions, USD 10 days Quotes (Buy), Cotton Liverpool Index, Money Supply (M2), Primary Market Rate of Commercial Paper (1-30 Days), and NASDAQ Index contributed significant to the fee income of Citibank N.A., Taiwan branch. In numerous forecasting methods, the results point out the Recursive forecast is a better forecast method. In cointegration test, the results show the fee income of Citibank N.A., Taiwan branch, cointegrate with Central Bank Cash in Vaults, Trust Funds of Financial Institutions, and Average Monthly Earnings Per Employee (Financial Industries).