How does bank liquidity creation affect non-performing loans in the MENA region?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anas Alaoui Mdaghri
Keyword(s):  
Generalized Method Of Moments ◽  
Balance Sheet ◽  
Policy Implications ◽  
Mena Region ◽  
Policy Makers ◽  
Content Type ◽  
Mena Countries ◽  
Negative Effect ◽  
Short And Long Term ◽  
Conventional Banks

PurposeThe study aims to empirically examine the effect of bank liquidity creation on non-performing loans (NPLs) in the Middle East and North Africa (MENA) region.Design/methodology/approachBerger and Bouwman's (2009) three-step methodology was employed to calculate the level of liquidity creation of a selected sample of 111 commercial banks in ten MENA countries from 2010–2017. Next, the two-step system generalized method of moments (GMM) estimator was used to investigate the linkage between bank liquidity creation and NPLs.FindingsThe results demonstrated a significant negative effect of bank liquidity creation on NPLs in the short and long term, implying that liquidity creation through both on- and off-balance sheet activities decreases NPLs. These findings accord with the “economic-enhancing” view. Furthermore, regression analysis investigated whether this relationship remained similar for Islamic and conventional banks. The results showed that liquidity creation diminishes Islamic and conventional bank NPLs.Research limitations/implicationsThe empirical findings raise several significant policy implications. Bank liquidity creation may decrease rather than increase NPLs, although the process of liquidity creation is viewed as risky by rendering banks more illiquid. Therefore, policy-makers should encourage bank liquidity creation to stimulate the economy. In a robust economy, borrowers are more likely to repay their debts, consequently diminishing banks' NPLs.Originality/valueTo the best of the author's knowledge, the current study is the first to provide empirical evidence on the effect of bank liquidity creation on NPLs in MENA countries.

The determinants of intermediation margins in Islamic and conventional banks

2018 ◽  
Vol 44 (6) ◽  
pp. 704-721 ◽  
Author(s):  
Khemaies Bougatef ◽  
Fakhri Korbi
Keyword(s):  
Risk Aversion ◽  
Financial Intermediation ◽  
Generalized Method Of Moments ◽  
Foreign Banks ◽  
Mena Region ◽  
Policy Makers ◽  
Content Type ◽  
Mena Countries ◽  
Long Run ◽  
Conventional Banks

Purpose The distinctive feature of Islamic financial intermediation is its foundation on profit-and-loss sharing which reinforces solidarity and fraternity between partners. Thus, the bank margin and its determinants may differ between Islamic and conventional banks (CBs). The purpose of this paper is to empirically assess the main factors that explain the bank margin in a panel of Islamic and CBs operating in the Middle East and North Africa (MENA) region. This study will permit to identify the common and the specific determinants of the intermediation margins in dual banking systems. Design/methodology/approach The authors use a dynamic panel approach. The empirical analysis is carried out for a sample of 50 Islamic banks (IBs) and 126 CBs from 14 MENA countries. Findings The results reveal that net profit margins of IBs may be explained for the most part by risk aversion, inefficiency, diversification and economic conditions. With regard to CBs, their margins depend positively on market concentration and risk aversion and negatively on specialization, diversification, inefficiency and liquidity. Practical implications The significant impact of the degree of diversification on margins suggests that any policy analysis of the pricing behavior of banks should rely on its whole output. The high levels of margins in Islamic and CBs based in the MENA region may represent an obstacle to these countries to pursue their development process. Thus, policy makers in these countries should consolidate the role of capital markets and nonbanking financial institutions to provide alternative sources of funding and stimulate more competition. Social implications The positive relationship between concentration and net interest margins requires that policy makers should create competitive conditions if they want to lower the social cost of financial intermediation. The creation of competitive conditions may be achieved through encouraging the establishment of new domestic banks or the penetration of foreign banks. Originality/value The present study aims to contribute to the existing literature on the determinants of bank margins in three ways. First, the authors identify the factors that most explain bank margins for both conventional and IBs. The majority of previous studies examine the determinants of the profitability or the overall performance of banks and in particular conventional ones. Second, this paper employs two generalized method of moments (GMM) approaches introduced by Arellano and Bover (1995) and Arellano and Bond (1991). It differs from Hutapea and Kasri (2010) who employed the co-integration technique to examine the long-run relationship between Islamic and CB margins and their determinants in Indonesia. Third, unlike previous studies focusing on MENA region that use a small number of countries and a short sample period, the period of study covers 16 years from 1999 to 2014 and a large sample of countries (14 countries). This paper differs from Lee and Isa (2017) who applied the dynamic two-step GMM estimator technique introduced by Arellano and Bond (1991) to study the determinants of intermediation margins of Islamic and CBs located in Malaysia.

What Drives Banking Profitability During Financial Crisis and Political Turmoil? Evidence from the MENA Region

2021 ◽  
pp. 097491012110311
Author(s):  
Salma Zaiane ◽  
Fatma Ben Moussa
Keyword(s):  
Financial Crisis ◽  
Political Instability ◽  
Generalized Method Of Moments ◽  
Bank Performance ◽  
Net Income ◽  
Mena Region ◽  
Factors Affecting ◽  
Mena Countries ◽  
Conventional Banks ◽  
The Impact

The purpose of the study is to identify bank specific, macroeconomic, and stability determinants of both conventional and Islamic bank performance. We also try to identify evidence on the impact of financial crisis and political instability during the Arab Spring (AS) period. The study covers a sample of 123 banks (34 Islamic banks and 89 conventional banks from 13 Middle East and North Africa [MENA] countries) over the period 2000–2013. We use different proxies of performance as dependent variables: return on asset (ROA), return on equity (ROE), net income margin (NIM), and estimate several regressions using the dynamic generalized method of moments. Our results reveal that bank size, asset quality, specialization, and diversification are the major bank specific factors affecting performance of Islamic and conventional banks. Besides, macroeconomic indicators (GDP and inflation) and regulatory quality influence both types of banks differently. Finally, both the financial crisis and political instability negatively affect bank performance.

Assessing the bank profitability in the MENA region

2014 ◽  
Vol 7 (3) ◽  
pp. 305-332 ◽  
Author(s):  
Rim Ben Selma Mokni ◽  
Houssem Rachdi
Keyword(s):  
Method Of Moments ◽  
North Africa ◽  
Banking Sector ◽  
Middle Eastern ◽  
Generalized Method Of Moments ◽  
Mena Region ◽  
Bank Profitability ◽  
Content Type ◽  
Conventional Banks ◽  
Econometric Technique

Purpose – Which of the banking stream is relatively more profitable in Middle Eastern and North Africa (MENA) region? Design/methodology/approach – The empirical study covers a sample of 15 conventional and 15 Islamic banks for the period 2002-2009.The authors estimate models using the generalized method of moments in system, of Blundell and Bond (1998). They exploit an up-to-date econometric technique which takes into consideration the issue of endogeneity of regressors to evaluate the comparative profitability of Islamic and conventional banks in the MENA region. Findings – Empirical analysis results show that the determinants’ significance varies between Islamic and conventional banks. Profitability seems to be quite persistent in the MENA region reflecting a higher degree of government intervention and may signal barriers to competition. Originality/value – The main interest is to develop a comprehensive model that integrates macroeconomic, industry-specific and bank-specific determinants. The paper makes comparison of the performance between two different banking systems in the MENA region. The authors consider a variable crisis to gain additional insights into the impacts of the financial crisis on MENA banking sector.

The validity of the irrelevant theory in Middle East and North African markets: conventional banks versus Islamic banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Akram Ramadan Budagaga
Keyword(s):  
Middle East ◽  
Fixed Effects ◽  
Positive Impact ◽  
Islamic Banks ◽  
Dividend Yield ◽  
Mena Region ◽  
Content Type ◽  
Mena Countries ◽  
Growth Opportunity ◽  
Conventional Banks

Purpose The purpose of this paper is to test the validity of irrelevant theory empirically by exploring the relationship between cash dividends, profitability, leverage and investment policy with the value of banking institutions in the Middle East and North Africa (MENA) markets. Design/methodology/approach The paper adopts Ohlson’s (1995) valuation model. The author estimates models by using static panel (random and fixed effects) techniques and the dynamic technique, namely, the GMM estimation. The empirical study covers a sample of 122 conventional and 37 Islamic banks listed on stock markets in 12 MENA countries over the period 1999–2018. Findings The empirical results show that dividend yield has no significant association with the value of conventional banks, whereas profitability, growth opportunity and leverage have a significant positive impact on the value of conventional banks. In contrast, the results for a sample of Islamic banks indicate that the dividend yield, profitability and leverage have a significant positive effect on the value of Islamic banks, whereas growth opportunity has no significant effect on the value of Islamic banks. Therefore, these results support, to a greater extent, the validity of the dividend irrelevance theory of Modigliani and Miller for conventional banks but would not be accepted for Islamic banks in the MENA region. Research limitations/implications This study is restricted to a sample of one type of financial firms, banking firms listed in the MENA countries. In addition, the study has dealt with one type of dividend (the cash dividend). Practical implications Highlighting the difference between conventional and Islamic banks is crucial to understanding dividend policy behavior and to providing investors information to be integrated in their valuation setting to make informed corporate decisions. Originality/value To the best of the author’s knowledge, the present study is the first of its kind that it draws a comparative analysis by testing empirically the validity of the Irrelevant Theory to banks in the MENA region covering a long time period in the recent past.

Basel III liquidity regulatory framework and bank liquidity creation in MENA countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anas Alaoui Mdaghri ◽  
Lahsen Oubdi
Keyword(s):  
Negative Impact ◽  
Middle Eastern ◽  
Policy Implications ◽  
Basel Iii ◽  
Bank Capital ◽  
Mena Region ◽  
Content Type ◽  
Dynamic Panel Model ◽  
Mena Countries ◽  
Coverage Ratio

Purpose This paper aims to investigate the potential impact of the Basel III liquidity requirements, namely, the net stable funding ratio (NSFR) and the liquidity coverage ratio (LCR), on bank liquidity creation. Design/methodology/approach The authors developed a dynamic panel model using the Quasi-Maximum Likelihood estimation on an unbalanced panel dataset of 129 commercial banks operating in 10 Middle Eastern and North African (MENA) countries from 2009 to 2017. Findings The results show that the NSFR significantly negatively affects liquidity creation. Similarly, the LCR exerts a substantial negative impact on the liquidity creation of the sampled MENA banks. These findings suggest that complying with both liquidity requirements tends to curtail liquidity creation. Moreover, further regression analysis of large and small bank sub-samples uncovered results similar to the overall MENA sample. Research limitations/implications The findings raise interesting policy implications and suggest a trade-off between the benefits of the financial resiliency induced by implementing liquidity requirements and the creation of liquidity essential for promoting economic growth in the region. Originality/value Most empirical research focuses on the relationship between bank capital and liquidity creation. To the knowledge, this paper is the first to provide empirical evidence on the effect of both the NSFR and LCR regulatory liquidity standards on bank liquidity creation in the MENA region.

Bank risk-taking in the MENA region

2016 ◽  
Vol 43 (12) ◽  
pp. 1367-1385 ◽  
Author(s):  
Rim Ben Selma Mokni ◽  
Mohamed Tahar Rajhi ◽  
Houssem Rachdi
Keyword(s):  
Risk Taking ◽  
Random Effect ◽  
Generalized Method Of Moments ◽  
Least Square ◽  
Islamic Banks ◽  
Mena Region ◽  
Content Type ◽  
Conventional Banks ◽  
Macroeconomic Determinants ◽  
The Empirical Analysis

Purpose The purpose of this paper is to investigate determinants of risk-taking in Islamic banks and conventional banks located in the MENA region. Design/methodology/approach The empirical study covers a sample of 15 conventional and 15 Islamic banks for the period 2002-2009. The authors estimate models using both generalized least square random effect and generalized method of moments system approaches. Findings The results of the empirical analysis show that the determinants’ risk-taking significance varies between Islamic and conventional banks. Originality/value The main aim is to develop a comprehensive model that integrates macroeconomic determinants, industry-specific determinants, and bank-specific determinants. This paper performs a comparison of the risk-taking between two different banking systems in the MENA region.

Banking stability in the MENA region during the global financial crisis and the European sovereign debt debacle

2017 ◽  
Vol 18 (4) ◽  
pp. 381-397 ◽  
Author(s):  
Naama Trad ◽  
Houssem Rachdi ◽  
Abdelaziz Hakimi ◽  
Khaled Guesmi
Keyword(s):  
Global Financial Crisis ◽  
Islamic Banks ◽  
Mena Region ◽  
Data Set ◽  
Content Type ◽  
Negative Effect ◽  
Macroeconomic Effect ◽  
Conventional Banks ◽  
The Global Financial Crisis ◽  
Conventional And Islamic Banks

Purpose This paper aims to focus on the main determinants of the performance and stability-banking sector in the Middle East and North Africa (MENA) region during the global financial crisis. Using a data set of 13 countries with both of 77 Islamic and 101 conventional banks during the period 2006-2013, empirical results show that specific variables allow explaining the change in the level of performance and stability for conventional and Islamic banks. However, the effect of some banks’ characteristics is not the same for the two bank groups. For the macroeconomic effect, it is observed that inflation exerts a negative effect on the bank performance except for conventional banks when it increases the profitability. Design/methodology/approach Using a data set of 13 countries with both of 77 Islamic and 101 conventional banks (CvB) during the period 2006-2013 and performing the generalized method of moments (GMM) method, the findings provide comprehensive evidence for the bank systems studied which are of interest also to policy makers and practitioners. Findings The main finding is that after the international financial crises of 2008, many worldwide banks have been experiencing crises in contrast to Islamic banks (IsB) which remain Gen more stable and more profitable. Foreign banks had a higher degree of exposure to risk, given their higher number of subsidiaries in the developed economies. As for the determinants of profitability, the bank-specific variables allow to explain the change in the level of performance and stability for conventional and Islamic banks. However, the effect of some banks characteristics is not the same for the two bank groups. For the macroeconomic effect, it is observed that inflation exerts a negative effect on the bank performance except for CvB when it increases the profitability measured by the return on assets (ROA). It is also found that the growth rate acts positively when the dependent variable is the ROA and negatively when the performance is measured by return on equity. Originality/value The inflation rate exerts a negative effect only on the ROA. This study differs from previous contributions in that it is tested the hypothesis of determinants of bank profitability and stability for both conventional and Islamic banks in the MENA region. It is of great interest to both policymakers and investors, with respect to regional development policies and dedicated portfolio investment strategies in each emerging region respectively. The authors adopted several ratios from the empirical literature on bank profitability and stability. Using a data set of 13 countries with both of 77 Islamic and 101 CvB during the period 2006-2013 and performing the GMM method, the findings have significant contributions to the literature by comprehensively clarifying and critically analyzing the current state of profitability and stability for both banks.

The internal and external determinants of the intermediation margin of banks across MENA countries

2018 ◽  
Vol 13 (3) ◽  
pp. 280-290 ◽  
Author(s):  
Dorra Talbi ◽  
Khemaies Bougatef
Keyword(s):  
Saudi Arabia ◽  
United Arab Emirates ◽  
Policy Implications ◽  
Mena Region ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Mena Countries ◽  
Current State ◽  
Interest Margins ◽  
Specific Factors

Purpose The purpose of this paper is to conduct a comparative analysis of internal and external determinants of bank’s performance in Middle East and North Africa (MENA) countries. Design/methodology/approach The authors use a static unbalanced annual panel data of banks operating in eight countries pertaining to the MENA region (Tunisia, Bahrain, Egypt, Jordan, Qatar, Lebanon, Kingdom of Saudi Arabia and United Arab Emirates) over the period from 1999 to 2014. Findings The findings reveal that the determinants of intermediation margins in the MENA region differ across countries. Overall, banks interest margins are explained by both bank-specific variables and macroeconomic factors except for Saudi Arabia in which interest margins exclusively depend on bank-specific factors. Originality/value These findings contribute to the clarification and critical analysis of the current state of bank’s performance in some countries located in MENA region, which would have several crucial policy implications.

The Interactional Relationships Between Credit Risk, Liquidity Risk and Bank Profitability in MENA Region

2020 ◽  
pp. 097215091987930 ◽  
Author(s):  
Hakimi Abdelaziz ◽  
Boussaada Rim ◽  
Hamdi Helmi
Keyword(s):  
Credit Risk ◽  
Seemingly Unrelated Regression ◽  
Law And Order ◽  
North African ◽  
Mena Region ◽  
Bank Profitability ◽  
Mena Countries ◽  
Unrelated Regression ◽  
Negative Effect ◽  
Conventional Banks

The purpose of this article is to investigate the relationship between credit risk, liquidity risks and bank profitability within the Middle East and North African (MENA) countries. We selected data related to a sample of conventional banks observed during the period 2004–2015 and we performed the Seemingly Unrelated Regression (SUR) method in the empirical section. The overall results suggest that profitability of MENA banks is negatively and significantly sensitive to an increase in credit and/or liquidity risks. This negative effect was confirmed for either the separate or the interaction effects of these two risks. Furthermore, the findings indicate that bank profitability decreases significantly the level of credit and liquidity risks. We also found that the law and order as institutional quality increases the profitability of MENA banks and decreases both credit and liquidity risks.

Risk and inefficiency

2018 ◽  
Vol 44 (6) ◽  
pp. 688-703
Author(s):  
Ines Ben Salah Mahdi ◽  
Mouna Boujelbène Abbes
Keyword(s):  
Behavioral Finance ◽  
Risk Taking ◽  
Cognitive Biases ◽  
Generalized Method Of Moments ◽  
Mena Region ◽  
Content Type ◽  
Financial Decisions ◽  
Net Interest Margin ◽  
Conventional Banks ◽  
Overconfidence Bias

Purpose The purpose of this paper is to conduct a behavioral analysis, through overconfidence, in order to understand how this cognitive bias could affect risk taking and inefficiency in Islamic and conventional banks operating in the MENA region. Design/methodology/approach To achieve the objective, the authors considered two overconfidence proxies, namely loan growth rate and net interest margin. Using the generalized method of moments method regressions for panel data, the authors found that the two overconfidence proxies have an effect on the risk exposure and consequently on the efficiency level of Islamic and conventional banks. Findings In general, overconfidence bias causes excessive risk taking and the degradation of the cost efficiency level. Moreover, these effects emerge with a delay of three to four years and have implications that are not too different for both types of banks. Originality/value The main motivation underlying this research study is the relatively new field of behavioral finance way in treating the topic of overconfidence. The particularity of the overconfidence bias topic is its assumption that financial decisions can be influenced by cognitive biases, ignoring the fact of a predetermined risk-return calculation.

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