INVESTMENT banks have been less profitable, more volatile and had consistently higher costs than commercial banks, according to a study of business models of the past decade.

    The Bank for International Settlements (BIS), a global forum for central banks, said Sunday a study of 222 lenders showed big variances in profitability and efficiency across models, and investment banks had been less efficient and more unpredictable.

    The study identified three types of business models: a retail-funded commercial bank, funded mainly by deposits; a wholesale market-funded commercial bank; and a capital markets-oriented bank, commonly known as an investment bank, heavily engaged in trading.

    Return on equity (RoE), a key measure of profitability, averaged 10 percent across the banks between 2005 and 2013.

    The study said RoE averaged 12.5 percent for retail-funded commercial banks, 8.1 percent at trading banks and 5.8 percent at the wholesale-funded commercial banks.

    Trading banks had the most volatile profitability, and their RoE swung repeatedly between the top and bottom of the relative ranking.

    Banks are trying to improve profitability and cut costs, but many are struggling to do so in the face of tougher regulations and higher compliance costs that have come in since the 2007/09 financial crisis.

    (SD-Agencies)