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Research Paper

ABSTRACT
There are numerous studies on the performance of banking system in various countries. However, few studies have investigated the performance of both sets of banks in Kurdistan Region. To fill this gap in the literature, this study aimed to compare the financial performances of Kurdish banking and conventional banking in Iraq for the year of 2016. The local banks operating in Kurdistan are new in comparison with abroad banks. This paper addresses this important question by evaluating the empirical relationship between diversification strategies and the performance in banking. Our data set covers local banks during the year 2016 and finds somewhat mixed results. Specifically, we find that banks’ performance tends to be no monotonically related to their diversification strategy. The marginal effects of focus indices (inverse measures of diversification) on performance are nonlinearly associated with the level of foreign ownership. A focused strategy is found to be associated with increased profit and decreased risk only up to a certain threshold.
Therefore, in order to conduct an appropriate comparative study, the paper has chosen conventional banks on the same level of activities. The study uses primary data derived from the banks’ customers and employees. Eight banks in Duhok city were selected to measure these performances in terms of the services diversity. The results show that the conventional banks are more diverse and more efficient than the local banks. However, there was no significant difference in performance between the eight banks. These findings may be due to the fact that local banks are new to the financial market in the diversity experience; they will therefore need time before they are able to compete with larger banks.

ACKNOWLEDGEMENTS
l would like to thanks my supervisor (Mr. Dzoar Jirjees Bakr) who was helpful with me during creating my project.
Also, I would like to thank the staff of Department of Accounting and Financial Techniques on the Duhok Administrative Technical College for their assessment to complete my study and achieving a bachelor’s degree in Financial and Accounting Techniques. And also for everyone who assisted me in achieving this level of knowledge.

DEDICATION
To the greatest prophet Mohammed
(Peace be Upon Him)
To my parents
The greatest example of love faithfulness, and patience
To my brothers and sisters
With love and respect
To my friends….
Who gave me a hand to complete this project
And finally, to all those who share even a word,
Thanks to all of you

LIST OF TABLES
Table (2-1) The Most Common Banks that Operating in Iraq
Table (3-1) The Eight Banks of the Existing Research’s Sample Selection
Table (4-1) Showing the First Section of Survey Response Summary
Table (4-2) Description the Diversity of Services Provided by the Selected Banks
Table (4-3) Description the Diversity of Services Provided by the Selected Banks and Its Influence on Growing Banks’ Performance 8

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TABLE OF CONTENTS
الآية القرآنية A
ABSTRACT B
ACKNOWLEDGEMENTS C
DEDICATION D
LIST OF TABLES E
CHAPTER ONE: INTRODUCTION 1
1.1 Introduction and Research Background 1
1.2 Research Background 2
1.3 The Research Hypotheses 3
1.4 Research Objectives 3
1.5 Research Questions 4
1.6 Summary 4
CHAPTER TWO: LITRATURE RIEVIEW 5
2.1 Introduction 5
2.2 The Meaning of Diversification 5
2.3 Banking System and Its Structure: 6
2.3.1 State-Owned Banks 6
2.3.2 Private Banks 6
2.4 How banking system make Money 8
2.5 Bank’s Performance and Banking Diversify 9
2.6 Managing Risks and Its Influence on Bank’s Performance 11
2.7 Summary 11
CHAPTER THREE: RESEARCH DESIGN AND METHOD 12
3.1. Introduction 12
3.2. Sample Selection 13
3.3. Data Collection 14
3.4. Data Analysis Method 15
3.5. Summary 16
CHAPTER FOUR: THE FINDINGS AND DISCUSSION 17
4.1. Introduction 17
4.2. Reporting and analysing the Results 17
4.2.1 The Diversity of Banking Services by the Sample Selected 18
4.2.2 The Effect of the Diversity of Banking Services on Bank’s Performance 20
4.3. Discussion and Comparison the Results 22
4.4. Summary 23
CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS 24
5.1. Conclusion 24
5.2. Recommendations 25
5.3. Limitations of the Research 26
References: 27
Appendices: 30
Appendix 1 30
Appendix 2 34
Appendix 3 35
Appendix 4 43

CHAPTER ONE: INTRODUCTION
1.1 Introduction and Research Background
In the past two decades of development economics, diversification has been thought of as a key factor in finance literature. This approach is also important for a bank as a financial institution. Banks can propose to diversify its credit portfolio to growth the performance and to cut the credit portfolio risk as much as possible. Acharya et al. (2002), performed one of the first and vital study about diversification on banks’ credit portfolio. They investigated Italian banks and found that both industrial and sectoral diversification reduces bank returns while producing riskier loans. However, Hayden et al. (2007), examined German banks and found that diversification tends to be associated with declines in bank returns, even after controlling for risk. Only in a small number of cases “e.g., high-risk banks and industrial diversification” did they reach statistically major affirmative relationships between diversification and bank incomes.
Kamp et al. (2004), studied whether German banks diversify their loan portfolios or focus on certain industries and established that a majority of banks expressively increased loan portfolio diversification. David and Dionne (2005), debated how big banks in Sweden manage their loan portfolios and explored the strategy behind loan portfolio diversification at banks. Schertler (2006), found that total local lending by savings banks and credit cooperatives (including their regional institutions), smaller banks, and banks that are highly particular in specific sectors more strongly to domestic sectoral growth. In middle east states diversification of banking services has not been commonly used in finance literature. According to Kubursi (1984: p.1) this happened because “the governments of the region would instead need only to ensure the distribution of oil revenues among the population”.
However, recent studies and evidence report narrowly that the Iraqi government faces the challenge of using growing oil revenues efficiently for better service delivery. Not only this, but also currently the important of diversification banking services has widely been used over the last five years. This support the idea behind choosing this topic in current research. This investigative will focus on the influence of diversifying banking services on reducing or growing bank’s performance.

1.2 Research Background
Bank’s performance is an important component in the financial system, and plays a key role in national economy. Since 1980 credit risk as a key for measuring performance of banks flourished both in the academic literature and in the financial industry (McNeil et al., 2005). Credit risk modelling also had a considerable influence on recent developments in bank capital regulation. The calibration of risk weights for different asset classes on a bank’s balance sheet under the 2001 reform of the Basel Accord of 1988 (Basel II) was guided by recent developments in credit risk modelling.
What is common to most of the credit risk models used in risk management and regulation is the assumption that individual characteristics of credit instruments, in particular the probability of default, the exposure at default and the recovery rate, follow some exogenous probability law that can be estimated using historical data. The credit risk model maps these characteristics into a loss distribution over a fixed time horizon. Loss distributions of loan portfolios derived in this way are often used in risk management to quantify the size of equity buffers necessary to support the portfolio. Thinking of credit risk as endogenous opens a different perspective that is in sharp contrast to the prevailing analysis of credit risk.
While standard credit risk modelling thinks of credit risk analysis as a decision problem under risk, the endogenous view of credit risk is conceptually nearer to an equilibrium phenomenon resulting from interacting individual decisions of many agents. From such a perspective the standard applications of credit risk modelling in regulation immediately look problematic. In the application of credit risk models, the economic capital that is required to support a given portfolio is derived as some quantile of the loss distribution, usually the value-at-risk.

1.3 The Research Hypotheses
The hypotheses of the current study can be listed as follows:
H1. There is a strong relationship between the diversity of banking services and the performance of selected banks.
H2. The diversification of banking services affects banks’ performance negatively.

1.4 Research Objectives
This study basically aims to determine the diversification nature of banks activities (revenue, credit, and deposits) and its roles for influencing bank’s performance. The follows are the essential objectivise of the current research:
1 To what extent choosing types of diversification strategies has significant effect on developing bank operations.
2 To clarify whether the choosing diversification of banking services has the possibility in growing bank’s performance.

1.5 Research Questions
For achieving the above goals of the current research, this study aimed to address the following research questions:
1. Do selected bank’s employees have the possibility of choosing diversification strategies to influence the bank activities?
2. Can the surveyed banks that have a strategy to diversify banking services influence bank’s performance?

1.6 Summary
The whole structure of the study takes the form of four chapters, including this introductory chapter. This chapter gives a brief overview of the recent history of the diversifying bank’s services and its effect on improving bank’s performance. Through this chapter an introduction has been stated for the purpose of reviewing the significant of choosing this topic. The main questions/issues that should be addressed in this paper are reviewed. In addition, the aims of the current research have been displayed. The next chapter will highlight on pervious literatures that focus on this topic.
CHAPTER TWO: LITRATURE RIEVIEW
2.1 Introduction
Over the past 13 years most investigations in Iraqi economy have emphasized that the use of diversification in banking system is debatable in finance research. The rationale behind this is that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. Not just domestically, but also many literatures around this place such as turkey have studied this issue regardless whether their findings are positive or not.
The previous chapter explained briefly an introduction about diversify banking services and also focused on a history background about its influence in improving bank’s performance. The research aims and questions have been stated there, as well as, the structure of this paper is displayed with the first chapter’s summary. One of the unique features of academic writing is that it is informed and investigated by academic scholars. The purpose of the current chapter is to review how other researches examined this topic in a systematic way, what is already known about the research topic as a whole, and to outline the key ideas and theories that help us to understand this.

2.2 The Meaning of Diversification
Diversification can be defined economically, the results to a more conventional approach called the focus index, which is based on the sum of squares of shares in different products or regions. Based on the economies of diversification framework, we measure the differences in predicted profits and costs between the observed diversified bank and a hypothetical focused bank. Diversification is captured in four dimensions: loans, deposits, assets, and geography.

2.3 Banking System and Its Structure:
2.3.1 State-Owned Banks
Six state-owned banks operated prior to the second Gulf War: Rafidain Bank, Rashid Bank, Agricultural Bank, Industrial Bank, Real Estate Bank, and Iraq Bank. Rafidain and Rashid bank are dominating the banking sector in Iraq. Rafidain and Rashid possess large, nation-wide branch systems (153 and 170 branches respectively) and are in many locations the only banks available to Iraqis. By comparison, the private banks total 175 branches among them. And, only Rafidain and Rashid made commercial loans to a wide range of enterprises. The four specialized banks were heavily involved in state-owned enterprises and in regime-related lending activities, although they were authorized in 1997 to engage in general commercial banking activities (Central Bank of Iraq, 2007).
Agricultural Bank was founded in 1936 and traditionally has lent to private sector agriculturalists. The bank has 40 branches. Total assets in 2003 amounted to $52.8 million. Industrial Bank was split off from the Agricultural Bank in 1940. Clients are both SOEs and private-sector companies. The bank has nine branches. Assets as of late 2003 totaled $34.7 million. Real Estate Bank was established in 1949 to provide housing construction finance and finance for the tourist industry.

2.3.2 Private Banks
As of October 2006, there were approximately twenty-five private banks licensed by the Central Bank in the Republic of Iraq, with twenty-three in operation. This compares to late 2003, when there were eighteen private banks licensed and operating, most of them having opened their doors in the early 1990s (Central Bank of Iraq, 2007).
After the second Gulf War, the expectation was that, as the situation in Iraq stabilized, and as foreign investment in the banking sector took place, there would be a winnowing out of weaker banks and a series of mergers to create larger, more competitive private banks. In fact, despite a certain degree of post-conflict euphoria, foreign investment in the banking sector has been limited to seven banks, and no new investments have been made since 2005.
Kurdistan International Bank (BKUI) is the 4th largest bank in terms of deposits and the largest bank by market-cap. It is also the only bank among the five largest banks that is an Islamic Bank. Foreign-exchange transactions and commissions on fund transfers together accounted for 47% of gross revenue for the bank while revenue from Murabaha, Mudharaba and Musharaka activities accounted for 43% of the total (Kurdistan International Bank, 2006).
Domestic banking system is different than abroad for example the system of turkey bank is consist of (The Banks Association of Turkey, 2008: 10):
i. Deposit Banks: The institutions operating primarily for the purpose of accepting deposit and granting loan in their own names and for their own accounts as per the provisions of this Law and the branches in Turkey of such institutions established abroad,
ii. Development and Investment Banks: The institutions operating primarily for the purposes of collecting fund through special current accounts and participation accounts and granting loan pursuant to this Law and the branches in Turkey of such institutions established abroad,
iii. Participation Banks: The institutions operating primarily for the purposes of granting loan and/or to fulfil the duties assigned there to by their special laws, other than accepting deposit or participation fund pursuant to this Law, and the branches in Turkey of such institutions established abroad.

Table (2-1): The Most Common Banks that Operating in Iraq

2.4 How banking system make Money
Iraqi banks generate the majority of their revenue and profits, from one of the following sources:
A. Trade-Related Activities: General business trading activities of importing and exporting goods generate revenue for Iraqi banks through a number of sources.
B. Traditional Lending Activities: Lending remains a small business for many banks in Iraq with cash credit-to-GDP at a mere 9 percent as compared to 55% on average for the MENA region.
C. Treasury and CBI Deposits: Keeping deposits at the Central Bank and earning the policy rate was one of the primary income sources for many banks until 2008. As the rate of inflation declined, the CBI actively reduced the policy rate from over 16% in 2008 down to 6% in 2011.

2.5 Bank’s Performance and Banking Diversify
Diversification of deposits aims to protect banks against liquidity risk exposures especially when their borrowing capacity is relatively weak or costly or both, this risk can be associated with unforeseen customer’s withdrawals or increased acceptable loans requests (Rose & Hudgins, 2010). Deposits diversification may be realized by decreasing the ratio of acquiring deposits from one specific source (individuals, business, public sector) at local and foreign levels, or it might be achieved through reorienting customer’s deposits to specific accounts or by issuing certificates backed by those deposits. Regardless, these intended to improve the efficiency of bank borrowing, and consequently this will decrease the weighted average cost of capital (Ross et al., 2011).
Credit diversification activities aims at reducing the probabilities of default risk in the side of borrowers through allocation of deposit and non deposit borrowing funds over different groups of customers in new sectors or in new geographical locations or by introducing new types of credit facilities (Jahn & ets 2013). The reduction of credit risk could be also achieved through specialization of lending. This specialization can be achieved by lowering the ratio of diversification either in credit types or the diversity of customers who are qualified for loans.
The diversification of banks revenues can be achieved by increasing the weight of non-interest income on the account of interest income. Or by diversifying the sources of both interest and non- interest income in the bank’s revenue portfolio (in the line diversification) (DE Young et al., 1999). The sources of banks non-interest income may include commissions, fees, investing on money market instruments, and other revenues that are related with the specialization nature of bank activities (Stiroh, 2002). Nevertheless, decreasing of revenue dispersion and enhancing the quality of income generating channels could be also achieved through revenues concentration (Mercieca et al., 2007).
The banking literature indicates that low concentration will debilitate the banks control over more diverse activities, and lowers their functional expertise, as well as, it will increase the direct as well as indirect costs that may encompass the decrease of bank competitive power, and the rising costs of agency and bankruptcy that may occur or coincide with diversification activities (Winton ,1999, Stiroh,2002). Instead, investment portfolio diversification aims to eliminate the non- systematic risk component of individual investment through reallocating resources over wide asset classes (Brown & Reilly 2012).
Furthermore, portfolio diversification could be achieved by altering of the investment strategy. This strategy could be successful in offsetting the systematic risks of investments but not discarding them (Hull, 2009). But it should not be concluded that this type of risks cannot be controlled or altered. the systematic risks, that is measured by the covariance between stock returns and market returns could be lowered by decreasing the stock price volatility, and this achieved, according to efficient market hypothesis, by decreasing earnings fluctuations that might be also achieved through diversification of bank activities.
Recent evidence suggests that the reflection of revenues stability in the stock prices is considered as evidence of the efficiency of the equity market (Fama, 1965). In addition, the reductions in the systematic risks will lead to decrease the required rate of return and increases the intrinsic value of the bank’s stock according to CAPM (capital asset pricing model) model (Fama, 2004). This study was applied on the Jordanian banks listed on Amman Stock Exchange for the period from (2006-2012). And those data are related with three types of banking activities and that are revenue portfolio, credit facilities, and deposit types.

2.6 Managing Risks and Its Influence on Bank’s Performance
Previous studies have reported that the commercial banks and other financial institutions that exist primarily to lend money to business, to individuals, governments, and other entities but the bulk of their profits come from business loans (Gallagher, 1989).
Cultivating good loan customers and using credit-risk analysis to ensure that borrowers are credit worthy is central to a bank’s long term profitability. The profitability of the lending institutions is heavily dependent on its lending programs’. In brief, lending is the most important banking financial institutions activity; it represents the largest commitment of funds for depository financial institutions and produces the greatest share of total revenue generated from earning assets. Thus lending programs must be well done and managed to affect the bank’s profitability. positively because poor management of credits is one of the major causes of bank’s failure, and the precision here is that profitability is the ultimate determinant of an organization’s success or failure (Hubbard, 1997).

2.7 Summary
In view of all that has been mentioned so far, one may suppose that if banks’ activities are diversified, the performance of a bank will be effected positively by these activities in respect with stock prices movements, and systematic risks of trading. The evidence presented in this chapter suggests that there is a variety of bank’s activities that could make a change in banks’ efficiency regardless these banks are owned by the state or private sector. The studies presented thus far provide evidence that poor credit risk management can lead to bank failure. The next chapter will focus on methodology which will be used by the researcher.

CHAPTER THREE: RESEARCH DESIGN AND METHOD
3.1. Introduction
To date various methods have been advanced and presented to measure the effectiveness of using the diversity of banking services to increase bank’s performance. This is because there are not many financial and accounting theories, hence some investigators use the results of others in their analyses (Smith, 2003). It means that the researcher is able to use any of these methods that is appropriate with the topic. This chapter gives a brief description of the research method which will be used in this research, the population considered, as well as, focuses the sample and sampling procedures. It also will discuss the sources of data, the data collection process and the type of research tool used. It also features prominently, the type of data analysis adopted for this study.
This schoolwork essentially objects to determine the diversification nature of banks and its roles for influencing bank’s performance. The follows are the essential objectivise of the current research:
1. To clarify whether the choosing diversification of banking services has possibility in reducing credit risks.
2. To what extent choosing types of diversification strategies has significant effect on developing bank operations.
For achieving the above goals of the current research, this study aimed to address the following research questions:
1. Do selected bank’s employees have the possibility of choosing diversification strategies to influence the bank credit?
2. Can the surveyed banks that have a strategy to diversify banking services influence bank’s performance?
3.2. Sample Selection
According to Saunders et al., (2012, p.262) sampling frame can be defined as “A complete list of all the cases in the population from which your sample will be drawn”. The investigator selected their list of research’s sample of the commercial, private and public banks in Dohuk city. Table (3.1) aims to show the final samples of the current research, it also views the name and the location of the sample selected for all eight banks. Furthermore, it purposes to display how much the current research sample is comparable by showing the details of all selected banks. The final sample selection of this research is arranged as follows:

Table 3.1: The Eight Banks of the Existing Research’s Sample Selection
Opening Hours in a Day Working Days in a Week Dealing with Establishment Year Location Bank’s Name N.
12 6 All sectors 2000 Duhok Dasinya 1
12 6 All sectors 2004 Duhok Werkaa 2
12 6 All sectors 2005 Duhok Dastan 3
12 6 All sectors 2007 Duhok Sepe 4
12 6 All sectors 2008 Duhok Al shemal 5
12 6 All sectors 2010 Duhok Shemal 6
12 6 All sectors 2014 Duhok Gihan 7
12 6 All sectors 2015 Duhok RT 8

The above table approves that the eight banks of the current research samples are equal in terms of location and the client’s sector who contract with banks selected. Further, they are also comparable for the weekly days of working and the period time of opening in a day. Moreover, it can perhaps be understood that the establishment date of starting their activities are listed in order, that means are nearly comparable.

3.3. Data Collection
The important part of the research method is to decide how and which data should be collected of the research, that means the choosing of a technique that is appropriate and used by a researcher to collect the data and then analyse it regardless of using a qualitative or quantitative system. There are two essential data that are highly used in academic research which are primary and secondary data (Hakim, 2012). The current research study does not use secondary data, because they were not available in a systematic style such as data base or annual reports. Therefor, data from the study was collected by the use of primary data only.
This schoolwork use structured questionnaires (See Appendix 1) to obtain a wide useful of information about using the diversification of banking services in improving bank’s performance of local bank sector in Duhok. The purpose of this is diverse including seeking and understanding the relevant factors. The questionnaire divided into (3) parts. Part A aims at meeting background information about the accused. Part B aims at becoming the replies about using the diversity of banking services in bank systems. Part C aims in order to understand how the diversification of banking services regulates bank’s performance, a series of transfections was performed to approve that such as follows:
The diversification of banking services:
• Interprets improved image of the bank.
• Or support effectively the accuracy of banking transactions.
• Or Make customers feel safe about bank’s dealing.
• Or Reduce the costing of several financial transactions.

The current research used a questionnaire because it is simply a ‘tool’ for collecting and recording information about a particular issue of interest. It is mainly made up of a list of questions, but should also include clear instructions and space for answers or administrative details. Questionnaires should always have a definite purpose that is related to the objectives of the research, and it needs to be clear from the outset how the findings will be used. Respondents also need to be made aware of the purpose of the research wherever possible, and should be told how and when they will receive feedback on the findings.

3.4. Data Analysis Method
Data analysis is a procedure to linkage between data collection and the research objectives to find or determine useful results (Coyne et al, 2010). As has previously been noted, the current research study uses primary data, therefore the statistical technique for analysing this data is calculated to be useful. This means that the researcher attempts to present and analyse his data by using tables and ratios to describe the findings. In order to give a clear image of the research findings and to try to achieve the research questions and goals, the researcher will separate the independent variable (using the diversity of banking services) with dependent variable (bank’s performance).
Then, it can be said that through this study, with the assistance of SPSS software, the research findings are going to be described. However, reporting the results alone does not show a clear analysis. Therefore, the current research findings will be discussed with the literature in terms of using the diversification of banking services in terms of the effectiveness of increasing and decreasing bank’s performance. A clear explanation of using SPSS and the analysing of the current research findings will be stated in the next chapter.

3.5. Summary
A questionnaire approach was adopted to evaluate usefulness of using the diversification of banking services to influence the banks’ selected performance of Duhok Commercial and public Banks. The choice of the questionnaire method was motivated by the fact that it enables the researcher to conduct a systematic enquiry into an event or a set of related events which aim to describe and explain the phenomenon of interest. The current chapter present the research design, the population, and sample selection, sampling procedure, and research instruments, methods of data analysis and data collection of the research process. This section aims to sum up the current chapter and then will provide a link to the next part of this research study. The next chapter will present the analysis of the findings of the current research study.

CHAPTER FOUR: THE FINDINGS AND DISCUSSION
4.1. Introduction
As stated in previous chapters, the aim of this research is to explore and assess the relationship between the diversity of banking services and the bank’s performance. And also, it objects to find how much bank’s performance is affected by increasing the diversification of banking services. This chapter aims to present and describe the results of this research in a systematic and detailed way including a presentation of research finding and also a brief discussion with the literature. It will show the responses from questionnaires and a review of information gathered from the primary sources of data. The evidence presented below will help to test the validity of theoretical concepts developed in chapter two. Firstly, the chapter will have look in the next part at the presentation of the research’s findings and evaluating the results disclosure within banks selected. The Second main part includes a discussion and comparing the current results with the literature.

4.2. Reporting and analysing the Results
Of the study population, about 100% completed and returned the all questionnaires. This first section of the questionnaire required respondents to give general information about bank’s employees and their clients who deals with its permanently. As can be seen from the table (bellow), the frequencies of the first part of questionnaire were about general information. The table (4-1) sows that the most people who fill questionnaires are 11th employees’ bank from 19, and nearly quarter of them are unit leader, this means that the information which collected are most realistic. The second section of questionnaire’ part A was regarding with academic skill of those people who fill the questionnaires.
The table (4-1) presents that about 64% are undergraduate which interpret that those have qualifications from colleges and institutions, this refer to that the information were collected are furthermost objectivity. Nearly 75% of the questionnaire’s feedback were filled by male and 25% by female. This dose not refer to an important point view. It is important to be mentioned here that approximately of those people have had experience between 6 to 10 years, this add to our results maximum creditability.

Table (4-1): Showing the First Section of Survey Response Summary

4.2.1 The Diversity of Banking Services by the Sample Selected
The second part of questionnaire related for gathering data from the sample selected is about to insure that these banks are actually diverse their services to their customers. The table below illustrates that average frequencies of 8 from 19 people were wholly agreed with our questions which were about the diversity of banking services, this means there are a variety of services that are provided by these banks.
About 58% fully agreed with the situation of these banks deal with all customers from private sector, whether they are individuals or companies. This does not interpret that the customers from private sector are only deal with these banks, but there is one of three also strongly agreed with that these banks regardless wither are (dependent or independent branches) deal with all customers from the public sector. The table (4-2) from section X5 translate the most important result which focus on the positive relationship between the number of bank’s customers and the diversity of banking services. By the end of the survey period, data had been collected from 19 branches whom were from 8 different banks, and most of statistical score of part or a whole variable are shown in appendix 1,2,3 and 4.

Table (4-2): Description the Diversity of Services Provided by the Selected Banks

The Mean score average for the table (4-2) was about the diversity of services provided by the selecting banks. The score was interesting of showing nearly 4 of 5 score, this can be interpreted that the results confirm these banks have used the diversification of their services and comes with line to achieve the first objective of the current research which approve of choosing types of diversification strategies has significant effect on developing bank operations. The Mean score displayed on the above table (4-2) of all X1 to X11 was closely 4 of 5, this indicate that the first question of this schoolwork has been answered positively which allocates with the selected bank’s employees have the possibility of choosing diversification strategies to influence the bank activities.
Interestingly, for those subjects with Standard Deviation score, on average, it was shown to have 1,11 for all X1 to X11. This can be translated that there is not any divergence between the levels of all independent variable group. This is very important statistically, because if there is a high score of Standard Deviation was scored, it would have interpreted unbalancing between all X1 to X11. Further analysis showed that the evaluation levels of independent variable group have a significant positive results, that add a widely evidence of our trust.

4.2.2 The Effect of the Diversity of Banking Services on Bank’s Performance
An effectiveness indicator between the diversification of services and banks’ performance is shown in table (4-3). It understands from Y10 variable that seen in the table that 12 of 19 populations are agreed the diversity of banking services reduce the costing of several financial transactions that happened in banks selected.Too, the Y1 variable translate that it contributes to provide the services from multiple places and throughout the week.
These two statements are the most interesting results from the second part of questionnaire. And from the table (4-3), it can be seen that by far the greatest demand is for achieving the second objectives of this research that emphasis on the choosing diversification of banking services has the possibility in growing bank’s performance.
Both of Mean and Standard Deviation scores are recorded positively in the table (4-3), they have scores of around 3.9 and 1 respectively. These respond and answered affirmatively our second question of the current research which was about the surveyed banks that have a strategy to diversify banking services influence bank’s performance.

Table (4-3): Description the Diversity of Services Provided by the Selected Banks and Its Influence on Growing Banks’ Performance

Further statistical tests exposed on Appendix 4 such as correlation and regression. A positive correlation was found between XA (the diversity of banking services) and YA (the banks’ performance). The Pearson Correlation among them was “.809”, this confirm there was a significant positive correlation between them and approve the First Hypothesis which predict that there will be a strong relationship between the diversity of banking services and the performance of selected banks. A two-way ANOVA revealed (See Appendix 4) that the F score is “32.274”. That means the banks’ performance has been affected completely by the diversity of banking services of the the current research sample selected.

4.3. Discussion and Comparison the Results
There are several possible explanations for the above result, the most common possible explanation for these results may be the discussion and comparison with the previous literatures. These results agree with the findings of other studies, in which there is an effectiveness of effecting the diversity of banking services and its performance, such as (Rose & Hudgins, 2010; DE Young et al., 1999; Jahn, 2013; Winton, 1999; Stiroh, 2002 and etc.…). However, the findings of the current study do not support some of the previous research. Ross et al., 2011, found that these intended to improve the efficiency of bank borrowing, and consequently this will decrease the weighted average cost of capital, and this is not with line of our results. Also, this study has been unable to demonstrate that portfolio diversification could be achieved by varying of the investment strategy, this has been found by (Hull, 2009).

4.4. Summary
The present chapter was designed to show and discuss the determination of the effect of the diversification of banking services on banks’ performance. This has been displayed by descriptive analysis of using SPSS software with assessing of some tables and appendices. The most obvious result is regarding to that our research findings were positively support research hypotheses, questions and objectives, and also confirm some and differ with other literatures. The final chapter will present a brief conclusion of this study.

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS
5.1. Conclusion
The existing studies on banking diversification, however, tend to oversimplify the analysis by assuming a linear relationship between diversification strategy and performance. Moreover, the existing studies tend to concentrate on banking industries of developed economies and largely ignore the banks in emerging economies. This paper strives to fill the gap in the literature by investigating the relationship between diversification strategies and the banks’ performance in the banking industry of Kurdistan. We have examined the question of whether banks should focus or diversify their portfolio with respect to increase their performance, and with respect to their business lines and financing sources. This paper also examines the importance of credit diversification on banks performance. The study is executed on 19 banks’ data and these data are provided from the year of 2016. Our main finding confirms whether a diversification produces, in terms of performance, positive effect for a sample of Duhok banks.
The performance of a bank concerns other firms and sectors in the economy. Focusing or diversifying portfolios influence the risk level that banks take on. Losses in one sector or location can be compensated from the gain obtained from other sector or location etc. On the other hand, if the diversification level increases, it leads to rising of costs that are undertaken and diversification may not be associated with higher returns in every circumstances. It is important to make strategic decisions for a bank, in cases of risk and return preferences. Results of the studies provided from Kurdistan’s bank diversification. Furthermore, there are certain differences like credit periods between Kurdistan and abroad banks. Henceforth diversification of banking portfolio applications may differ from region to region.
The empirical results which were previously mentioned could permit us to conclude that banks performance has evaluated the changes in revenue diversification more efficiently than changes in the structure of credit or deposits regarding the systematic risks of bank equity portfolio. The concentration of interest income in the bank’s revenue portfolio was high. Nevertheless, the Kurdish banks were more diversified regarding credit and deposit activities, but this diversification was not evaluated by market.

5.2. Recommendations
In this part, the author will suggest several recommendations for policy-makers and Duhok banks in order to improve their role and performance and operate effectually in Kurdistan financial market. Duhok banks need to increase their operational size and number of account holders in order to improve their efficiency and profitability.
In order to achieve this, they are recommended to create an awareness of Islamic finance and its products firstly among Muslim customers and then among non-Muslim customers; they should also develop and launch new products in the market according to the needs of both Muslim and non-Muslim clients.
Moreover, Kurdish banking lacks a sufficient number of competent Duhok scholars. Therefore, the study recommends that, in order to improve their financial system, Duhok banks recruit qualified and specialist scholars who have information about the modern financial system and banks, in order to ensure sustainable growth for Kurdish banks.

5.3. Limitations of the Research
Eventually, future studies may be able to achieve a more significant comparison if more Kurdish sectoral banks are taken into consideration over a longer period of study.
Moreover, this paper has selected and examined local banks in Duhok city only. Examination and study of banks in various nations would produce a more interesting comparison of the performances of traditional.
In addition, this paper only utilized traditional diversity of banking services to gauge Duhok banks’ performance. Thus, it might be very interesting were future researchers to employ the diversity of banking services that are more Islamic, such as Mudaraba-Musharaka, Zakat total and Government Bond Investment. Furthermore, it would be more meaningful were future studies to provide an explanation of the performance gap that exists between Duhok and international banks.

References:
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Berger, A.N. and L.J. Mester. (1997). “Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?” Journal of Banking and Finance 21: 895–947.
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Bernstein, P.L. (1996). Against the Gods: The Remarkable Story of Risk. New York: Wiley and Sons.
Brown. K, Reilly. F. (2012).Analysis of investment and management of portfolio. Wiley, Tenth Edition.
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Cebenoyan, A.S. and P.E. Strahan. (2001). “Risk Management, Capital Structure and Lending at Banks.” Boston College, Carroll School of Management. Photocopy.
D’Souza, C. and A. Lai. (2002). “The Effects of Bank Consolidation on Risk Capital Allocation and Market Liquidity.” Bank of Canada Working Paper No. 2002–5.
DeYoung, R. and K.P. Roland. (1999). “Product mix and earnings volatility at commercial banks: Evidence from a degree of total leverage model Journal of Financial Intermediation ,10, 54-84.
Eisenbeis, R.A., G.D. Ferrier, and S.H. Kwan. (1999). “The Informativeness of Stochastic Frontier and Programming Frontier Efficiency Scores Cost Efficiency and Other Measures of Bank Holding Company Performance.” Federal Reserve Bank of Atlanta Working Paper No. 99–23.
Fama. Eugene. (1965). The Behaviour of Stock-Market Prices. The Journal of Business, 38(1), 34-105.
Fama. Eugene. F & French. Kenneth. R. (2004). The capital assets pricing model: theory & evidence. Journal of economic prospective, 18(3).25-46.
Froot, K.A. (2001). “Bank Capital and Risk Management: Issues for Banks and Regulators.” International Finance Risk Institute Research Paper No. 8.
Gallagher, G. T. (1989). Credit risk analysis. 2nd ed. New York. NY. The MacMillan publishing.Inc.
Hancock, D. and J.A.Wilcox. (1994). “Bank Capital, Loan Delinquencies, and Real Estate Lending.” Journal of Housing Economics 3 (2): 121–46.
Hubbard, R. F. (1997). Méthodes des sciences sociales. 11ème éd. Paris
Hull. J. (2009). Risk management and financial institutions. Wiley,Ninth edition.
Jahn. N, Memmel .C, Pfingsten. A. (2013). Banks’ concentration versus diversification in the loan portfolio: new evidence from Germany. BUNDESBAN K DISCUSSION PAPER NO 53/2013
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Kubursi, A. A., (1984). Oil, Industrialization and Development in the Arab Gulf States. London: Croom Helm.
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Appendices:
Appendix 1
Sample of Research Questionnaire
Kurdistan Region/ Iraq
Ministry of Higher Education and Scientific Research
Duhok Polytechnic University
Duhok Administrative Technical College
Department of Accounting and Financial Techniques

In the name of Allah, the Beneficent, the Merciful.

“My Lord, increase me in knowledge”.

Diversification of Services Banking and Its Influence on Bank’s Performance

Note: All of your information and feedbacks will be in privacy and credibility and will be used only for research purposes.

The Researcher Name: Sozan Zaxoy

This questionnaire contains of three parts:

Part A. General Information:
Position Class
☐
Employee ☐
Unit leader. ☐
Department Leader. ☐
Entity director.

Academic Degree
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Secondary School. ☐
Undergraduate ☐
Postgraduate ☐
Other

Gender
☐
Female ☐
Male

Experience
☐
Less than 3 years. ☐
3 to 5 years. ☐
6 to 10 years. ☐
More than 10 years

Part B. Independent variable data: The diversification of banking services:
S. Explanation 1 2 4 4 5
Strongly Agree Agree Neutral Disagree Strongly Disagree
1 Bank (dependent or independent branches) deals with all customers from the public sector. ☐
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2 Bank deals with all customers from private sector, whether they are individuals or companies. ☐
☐
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☐
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3 Bank deals with both local and foreign customers. ☐
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☐
☐
☐

4 The bank has a variety of banking services for both public and private customers and their number is increasing frequently. ☐
☐
☐
☐
☐

5 There is a positive relationship between the number of bank’s customers and the diversity of banking services. ☐
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6 Using electronic services has taken a place in the diversity of banking services. ☐
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7 The needs of customers are playing a vital role in providing services to them by the bank. ☐
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☐
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8 The bank is responsible for any unlikely effects that are influenced by the diversification of banking services. ☐
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☐
☐
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9 The bank uses a variety of modern banking services that are similar to what provided by the international banks. ☐
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10 The bank should contact with customers and report to them all the new services. ☐
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11 The bank should know in details what are their customers’ activities. ☐
☐
☐
☐
☐

Part C. The influence of the independent variable on the dependent variable: The diversity of banking services increases the bank’s performance:
S. Explanation 1 2 4 4 5
Strongly Agree Agree Neutral Disagree Strongly Disagree
1 Contribute to provide the services from multiple places and throughout the week, means that servicing customers is going concern. ☐
☐
☐
☐
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2 Support effectively the accuracy of banking transactions. ☐
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3 Quick and easy to measure bank’s performance. ☐
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4 The diversification of banking services interprets improved image of the bank. ☐
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5 Achieve urgently customers’ responses. ☐
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6 Make customers feel safe about bank’s dealing. ☐
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7 Strong the relationship between bank and customers and make satisfactions. ☐
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8 Appropriate for customers’ needs. ☐
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9 The diversity of banking services taking into consideration customers’ opinions. ☐
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10 Reduce the costing of several financial transactions. ☐
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11 Provide different services in different areas. ☐
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☐

Appendix 2
Descriptive Statistics
Descriptive Statistics for Variable X
N Minimum Maximum Mean Std. Deviation
X1 19 3 5 4.05 .780
X2 19 1 5 4.21 1.134
X3 19 2 5 3.95 .911
X4 19 1 5 3.74 1.327
X5 19 2 5 4.47 .905
X6 19 1 5 4.00 1.291
X7 19 1 5 3.47 1.219
X8 19 2 5 3.68 1.003
X9 19 1 5 3.79 1.398
X10 19 1 5 3.74 1.195
X11 19 2 5 4.00 1.054
Valid N (listwise) 19

Descriptive Statistics for Variable Y
N Minimum Maximum Mean Std. Deviation
Y1 19 3 5 4.05 .705
Y2 19 1 5 3.95 1.177
Y3 19 2 5 4.05 1.026
Y4 19 1 5 3.89 1.329
Y5 19 2 5 3.95 .970
Y6 19 1 5 3.74 1.147
Y7 19 2 5 3.84 1.068
Y8 19 3 5 3.79 .713
Y9 19 2 5 3.89 1.049
Y10 19 2 5 3.89 .737
Y11 19 2 5 3.63 1.012
Valid N (listwise) 19

Appendix 3
Frequencies

X Variable’s Statistics
X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11
N Valid 19 19 19 19 19 19 19 19 19 19 19
Missing 0 0 0 0 0 0 0 0 0 0 0
Mean 4.05 4.21 3.95 3.74 4.47 4.00 3.47 3.68 3.79 3.74 4.00
Std. Deviation .780 1.134 .911 1.327 .905 1.291 1.219 1.003 1.398 1.195 1.054
Skewness -.096 -1.481 -.380 -.575 -1.673 -1.039 -.035 -.385 -.674 -.742 -.636
Std. Error of Skewness .524 .524 .524 .524 .524 .524 .524 .524 .524 .524 .524

The Frequency Table of Variable X

X1
Frequency Percent Valid Percent Cumulative Percent
Valid Neutral 5 26.3 26.3 26.3
Agree 8 42.1 42.1 68.4
Strongly Agree 6 31.6 31.6 100.0
Total 19 100.0 100.0

X2
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 1 5.3 5.3 5.3
Neutral 4 21.1 21.1 26.3
Agree 3 15.8 15.8 42.1
Strongly Agree 11 57.9 57.9 100.0
Total 19 100.0 100.0

X3
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 1 5.3 5.3 5.3
Neutral 5 26.3 26.3 31.6
Agree 7 36.8 36.8 68.4
Strongly Agree 6 31.6 31.6 100.0
Total 19 100.0 100.0

X4
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 1 5.3 5.3 5.3
Disagree 3 15.8 15.8 21.1
Neutral 4 21.1 21.1 42.1
Agree 3 15.8 15.8 57.9
Strongly Agree 8 42.1 42.1 100.0
Total 19 100.0 100.0

X5
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 1 5.3 5.3 5.3
Neutral 2 10.5 10.5 15.8
Agree 3 15.8 15.8 31.6
Strongly Agree 13 68.4 68.4 100.0
Total 19 100.0 100.0

X6
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 1 5.3 5.3 5.3
Disagree 2 10.5 10.5 15.8
Neutral 3 15.8 15.8 31.6
Agree 3 15.8 15.8 47.4
Strongly Agree 10 52.6 52.6 100.0
Total 19 100.0 100.0

X7
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 1 5.3 5.3 5.3
Disagree 2 10.5 10.5 15.8
Neutral 9 47.4 47.4 63.2
Agree 1 5.3 5.3 68.4
Strongly Agree 6 31.6 31.6 100.0
Total 19 100.0 100.0

X8
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 3 15.8 15.8 15.8
Neutral 4 21.1 21.1 36.8
Agree 8 42.1 42.1 78.9
Strongly Agree 4 21.1 21.1 100.0
Total 19 100.0 100.0

X9
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 1 5.3 5.3 5.3
Disagree 4 21.1 21.1 26.3
Neutral 2 10.5 10.5 36.8
Agree 3 15.8 15.8 52.6
Strongly Agree 9 47.4 47.4 100.0
Total 19 100.0 100.0

X10
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 1 5.3 5.3 5.3
Disagree 2 10.5 10.5 15.8
Neutral 4 21.1 21.1 36.8
Agree 6 31.6 31.6 68.4
Strongly Agree 6 31.6 31.6 100.0
Total 19 100.0 100.0

X11
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 2 10.5 10.5 10.5
Neutral 4 21.1 21.1 31.6
Agree 5 26.3 26.3 57.9
Strongly Agree 8 42.1 42.1 100.0
Total 19 100.0 100.0

Y Variable Statistics
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11
N Valid 19 19 19 19 19 19 19 19 19 19 19
Missing 0 0 0 0 0 0 0 0 0 0 0
Mean 4.05 3.95 4.05 3.89 3.95 3.74 3.84 3.79 3.89 3.89 3.63
Std. Deviation .705 1.177 1.026 1.329 .970 1.147 1.068 .713 1.049 .737 1.012
Skewness -.074 -1.258 -.805 -.898 -.701 -.903 -.265 .336 -.416 -.756 -.221
Std. Error of Skewness .524 .524 .524 .524 .524 .524 .524 .524 .524 .524 .524

The Frequency Table of Variable Y

Y1
Frequency Percent Valid Percent Cumulative Percent
Valid Neutral 4 21.1 21.1 21.1
Agree 10 52.6 52.6 73.7
Strongly Agree 5 26.3 26.3 100.0
Total 19 100.0 100.0

Y2
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 1 5.3 5.3 5.3
Disagree 2 10.5 10.5 15.8
Neutral 1 5.3 5.3 21.1
Agree 8 42.1 42.1 63.2
Strongly Agree 7 36.8 36.8 100.0
Total 19 100.0 100.0

Y3
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 2 10.5 10.5 10.5
Neutral 3 15.8 15.8 26.3
Agree 6 31.6 31.6 57.9
Strongly Agree 8 42.1 42.1 100.0
Total 19 100.0 100.0

Y4
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 1 5.3 5.3 5.3
Disagree 3 15.8 15.8 21.1
Neutral 2 10.5 10.5 31.6
Agree 4 21.1 21.1 52.6
Strongly Agree 9 47.4 47.4 100.0
Total 19 100.0 100.0

Y5
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 2 10.5 10.5 10.5
Neutral 3 15.8 15.8 26.3
Agree 8 42.1 42.1 68.4
Strongly Agree 6 31.6 31.6 100.0
Total 19 100.0 100.0

Y6
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly Disagree 1 5.3 5.3 5.3
Disagree 2 10.5 10.5 15.8
Neutral 3 15.8 15.8 31.6
Agree 8 42.1 42.1 73.7
Strongly Agree 5 26.3 26.3 100.0
Total 19 100.0 100.0

Y7
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 2 10.5 10.5 10.5
Neutral 6 31.6 31.6 42.1
Agree 4 21.1 21.1 63.2
Strongly Agree 7 36.8 36.8 100.0
Total 19 100.0 100.0

Y8
Frequency Percent Valid Percent Cumulative Percent
Valid Neutral 7 36.8 36.8 36.8
Agree 9 47.4 47.4 84.2
Strongly Agree 3 15.8 15.8 100.0
Total 19 100.0 100.0

Y9
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 2 10.5 10.5 10.5
Neutral 5 26.3 26.3 36.8
Agree 5 26.3 26.3 63.2
Strongly Agree 7 36.8 36.8 100.0
Total 19 100.0 100.0

Y10
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 1 5.3 5.3 5.3
Neutral 3 15.8 15.8 21.1
Agree 12 63.2 63.2 84.2
Strongly Agree 3 15.8 15.8 100.0
Total 19 100.0 100.0

Y11
Frequency Percent Valid Percent Cumulative Percent
Valid Disagree 3 15.8 15.8 15.8
Neutral 5 26.3 26.3 42.1
Agree 7 36.8 36.8 78.9
Strongly Agree 4 21.1 21.1 100.0
Total 19 100.0 100.0

Appendix 4

Correlations
Correlations
XA YA
XA Pearson Correlation 1 .809**
Sig. (2-tailed) .000
N 19 19
YA Pearson Correlation .809** 1
Sig. (2-tailed) .000
N 19 19
**. Correlation is significant at the 0.01 level (2-tailed).

Regression
Variables Entered/Removeda
Model Variables Entered Variables Removed Method
1 YAb . Enter
a. Dependent Variable: XA
b. All requested variables entered.

Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .809a .655 .635 .417
a. Predictors: (Constant), YA

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 5.618 1 5.618 32.274 .000b
Residual 2.959 17 .174
Total 8.577 18
a. Dependent Variable: XA
b. Predictors: (Constant), YA

Coefficientsa
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) .636 .586 1.087 .292
YA .846 .149 .809 5.681 .000
a. Dependent Variable: XA