This paper analyzes the effect of revenue diversification on non-performing loans of banks in 14 European countries from 1999 to 2012. Our main finding is that revenue diversification significantly reduces non-performing loans of Eurozone banks. In addition, our results show that higher proportions of commission and fee income and other operating income in total income contribute to increase asset quality. We also conclude that the relationship between revenue diversification and non-performing loans is enhanced during the financial crisis period and that regulations restricting banking activity may increase non-performing loans.