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

Bank Performance ◽

Net Income ◽

Mena Region ◽

Factors Affecting ◽

Mena Countries ◽

Conventional Banks ◽

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.

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

International Journal of Emerging Markets ◽

10.1108/ijoem-05-2021-0670 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Anas Alaoui Mdaghri

Keyword(s):

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 impact of Islamic banking model and Islamic financial development on bank performance: evidence from dual banking economies

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-05-2020-0248 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Tanveer Ahsan ◽

Muhammad Azeem Qureshi

Keyword(s):

Financial Development ◽

Fixed Effects ◽

Bank Performance ◽

Islamic Banking ◽

Islamic Banks ◽

Content Type ◽

Country Level ◽

Conventional Banks ◽

Purpose The purpose of this study is to develop an Islamic Banking Index representing the Islamic banking model and to investigate its impact on the performance of Islamic and conventional banks. This study also analyzes the impact of Islamic financial development on bank performance. Design/methodology/approach The authors collected the data from 23 countries for the period from 2010 to 2018 and developed a composite Islamic Banking Index. The authors applied the generalized method of moments on 3,542 bank-year observations for both Islamic and conventional banks to analyze the impact of the Islamic Banking Index on bank performance. The results of the study are robust to time-fixed effects, country-level time-varying factors and endogeneity issues. Findings The authors found that Islamic Banking Index positively contributes to the return on assets (ROAit) of Islamic banks only. This impact becomes highly significant in countries with comparatively higher Islamic financial development. This finding suggests that the Islamic financial development in a country provides a supportive operating environment to Islamic banks and increases their performance. The authors also found that Islamic Banking Index positively contributes to the return on equity (ROEit) of both types of banks. Practical implications The authors argue that moving away from interest-based products and focusing more on diversified portfolios can boost the performance of both types of banks without increasing their risk levels. Originality/value To the best of the authors’ knowledge, this is the first study that develops a composite Islamic Banking Index based on differentiating factors of the Islamic banking model and investigates the impact of Islamic Banking Index and Islamic financial development on bank performance.

Does the board diversity impact bank performance in the MENA countries? A multilevel study

Corporate Governance ◽

10.1108/cg-06-2020-0222 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Ayman Issa ◽

Hesham Yousef ◽

Ahmed Bakry ◽

Jalal Rajeh Hanaysha ◽

Ahmad Sahyouni

Keyword(s):

Financial Performance ◽

Educational Level ◽

Random Effect ◽

Ordinary Least Squares ◽

Bank Performance ◽

Board Diversity ◽

Content Type ◽

Mena Countries ◽

Purpose The purpose of this study is to examine the impact of board diversity (e.g. nationality, gender and educational level) on financial performance for a sample of banks listed in 11 countries in the Middle East and North Africa region. Design/methodology/approach This paper uses the system generalized method of moments estimation approach on the data of banks listed in the MENA countries over the period 2011–2018 to investigate the relationship between board diversity and financial performance. Also, the findings are supported by additional robustness tests, including ordinary least squares, fixed and random effect techniques. Findings The empirical results show that there is a significant relationship between board diversity and financial performance in banks. Specifically, the findings demonstrate that board diversity related to nationality has a significant positive impact on bank performance. The findings also show an insignificant association between gender and educational level diversity and bank performance. The robustness analysis supports the findings of the baseline model. Practical implications The study provides multi-country evidence on the importance of board diversity in the MENA region and it sheds light on possible tracks for future reforms aimed at enhancing the effectiveness of the board’s functions. Originality/value This paper extends the existing literature by providing empirical evidence on the association between board diversity and financial performance of banks in the MENA countries. This paper also provides preliminary evidence on the importance of board diversity to influence financial performance.

Causal Interaction between FDI, Corruption and Environmental Quality in the MENA Region

Economies ◽

10.3390/economies9010014 ◽

2021 ◽

Vol 9 (1) ◽

pp. 14

Author(s):

Wajdi Bardi ◽

Mohamed Ali Hfaiedh

Keyword(s):

Developed Countries ◽

Kuznets Curve ◽

Mena Region ◽

Factors Affecting ◽

Mena Countries ◽

Distributed Lag ◽

Empirical Estimates ◽

Autoregressive Distributed Lag ◽

The present work analyzes the impact of foreign direct investment (FDI) and corruption on the quality of the environment in the MENA region. Indeed, the magnitude of corruption and the quality of institutions are often cited as the main factors affecting the FDI inflow. Here, the Autoregressive Distributed Lag (ARDL) approach was used to examine data on a group of MENA countries from 1990 to 2016. Our findings verify the Environmental Kuznets Curve. Furthermore, the empirical estimates approve the “pollution haven” hypothesis, which postulates that the polluting industrial activities of developed countries shift to developing countries which have less stringent environmental regulations. Based on the study findings, we recommend greater awareness of the harmful effects of corruption among political and economic actors.

Competitiveness Review An International Business Journal incorporating Journal of Global Competitiveness ◽

Sustainability reporting and bank performance after financial crisis

10.1108/cr-04-2019-0040 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Amina Buallay ◽

Sayed M. Fadel ◽

Jasim Alajmi ◽

Shahrokh Saudagaran

Keyword(s):

Developing Countries ◽

Financial Crisis ◽

Sustainability Reporting ◽

Developed Countries ◽

Bank Performance ◽

Content Type ◽

The 2008 Financial Crisis ◽

The Impact ◽

The Relationship

Purpose This study aims to examine the relationship between sustainability reporting and bank performance after financial crisis in developed and developing countries. Design/methodology/approach This study examines 882 banks from developed and developing countries covering 11 years after the 2008 financial crisis. The independent variable is environmental, social and governance (ESG) scores. The dependent variables are return on assets, return on equity and Tobin’s Q. This study uses bank- and country-specific control variables to measure the relationship between sustainability reporting and bank performance. Findings The findings deduced from the empirical results demonstrate that ESG improves banks’ accounting and market-based performance in developed countries, supporting value creation theory. Using pooling regression and instrumental variable – generalized method of moments, this study finds that ESG weakens banks’ performance in developed and developing countries. Originality/value To the best of the author’s knowledge, this is the first study to investigate and compare the impact of sustainability reporting on banks’ performance in developed and developing countries. The study found similarities in the impact of sustainability reporting and the improvement of banks’ current and future performance.

The determinants of intermediation margins in Islamic and conventional banks

Managerial Finance ◽

10.1108/mf-11-2016-0327 ◽

2018 ◽

Vol 44 (6) ◽

pp. 704-721 ◽

Cited By ~ 3

Author(s):

Khemaies Bougatef ◽

Fakhri Korbi

Keyword(s):

Risk Aversion ◽

Financial Intermediation ◽

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.

Handbook of Research on Accounting and Financial Studies - Advances in Finance, Accounting, and Economics ◽

Evaluating Microeconomic Factors, Financial Crisis, and Stock Price Dynamics

10.4018/978-1-7998-2136-6.ch007 ◽

2020 ◽

pp. 131-153

Author(s):

Husam-Aldin N. Al-Malkawi ◽

Rekha Pillai ◽

Mohammad S. AlShiab

Keyword(s):

Financial Crisis ◽

Stock Prices ◽

Stock Price ◽

Global Financial Crisis ◽

Negative Impact ◽

Mena Region ◽

Return On Equity ◽

Mena Countries ◽

Price Earnings Ratio ◽

The purpose of this chapter is to examine the impact of microeconomic factors and the global financial crisis (GFC) on stock prices in the Middle East and North Africa (MENA) region. The study employs panel data techniques covering a sample of 277 firms listed in seven MENA countries for the period 2000-2015. The empirical model consists of eight microeconomic (firm-specific) variables and a dummy variable to capture the impact of global financial crisis. The results suggest that microeconomic factors play a vital role in determining stock prices in the MENA region. More specifically, factors such as return on equity, book value per share, dividend per share, earnings per share, and price-earnings ratio positively influence stock prices, while dividend yield and gearing have negative impact on stock prices. In addition, firm size posits a positive and statistically significant relationship with stock prices. However, the GFC seems to be insignificant determinant of stock prices in the case of MENA countries in the sample studied. This chapter provides several practical implications.

The effect of liquidity risk on bank performance: A comparative study of Islamic and conventional banks in the middle east and north Africa region

Accounting ◽

10.5267/j.ac.2021.2.017 ◽

2021 ◽

pp. 1211-1220 ◽

Cited By ~ 1

Author(s):

Tijani Amara ◽

Tharwa Najar

Keyword(s):

Middle East ◽

Comparative Study ◽

North Africa ◽

Liquidity Risk ◽

Capital Adequacy ◽

Bank Performance ◽

Islamic Banks ◽

Conventional Banks ◽

This study explores the impact of liquidity risk on Bank performance through a comparative study between conventional and Islamic banks in the Middle East and North Africa Region (MENA). Bank Size, Capital adequacy ratio, liquidity Gap and Return on Assets are used as independent variables and the Bank Age, Inflation Rate and Growth Rate of Domestic product are used as macro-economic variables and the dependent variable is liquidity risk. The methodological choice is the generalized method of moments (GMM). We used a sample of 10 Islamic banks and 25 conventional banks in the MENA region during the period of 2006-2018. The results show various impacts of these variables on liquidity risk in both banks. We also find that the rise in CAR in Islamic banks and conventional banks does not influence liquidity risk. The logical explanations are that the bank could allocate funds to improve credit and fixed assets.

The impact of globalization on the performance of Banks in South Africa

Review of International Business and Strategy ◽

10.1108/ribs-02-2016-0003 ◽

2016 ◽

Vol 26 (4) ◽

pp. 517-542 ◽

Cited By ~ 3

Author(s):

Fadzlan Sufian ◽

Fakarudin Kamarudin

Keyword(s):

South Africa ◽

Host Country ◽

Banking Sector ◽

Estimation Method ◽

Bank Performance ◽

Content Type ◽

Multinational Banks ◽

Dynamic Panel Regression ◽

Purpose This paper aims to provide empirical evidence for the impact globalization has had on the performance of the banking sector in South Africa. In addition, this study also investigates bank-specific characteristics and macroeconomic conditions that may influence the performance of the banking sector. Design/methodology/approach The authors use data collected for all commercial banks in South Africa between 1998 and 2012. The ratio of return on assets was used to measure bank performance. They then used the dynamic panel regression with the generalized method of moments as an estimation method to investigate the potential determinants and the impact of globalization on bank performance. Findings Positive impact of greater economic integration and trade movements of the host country, while greater social globalization in the host country tends to exert negative influence on bank profitability. The results show that banks originating from the relatively more economically globalized countries tend to perform better, while banks headquartered in countries with greater social and political globalizations tend to exhibit lower profitability levels. Originality/value An empirical model was developed that allows for the performance of multinational banks to depend on internal and external factors. Moreover, unlike the previous studies on bank performance, in this empirical analysis, we control for the different dimensions of globalizations while taking into account the origins of the multinational banks. The procedure allows us to test for the home field, the liability of foreignness and global advantage hypotheses to deduce further insights into the prospects of banking across borders.

Assessing the bank profitability in the MENA region

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-03-2013-0031 ◽

2014 ◽

Vol 7 (3) ◽

pp. 305-332 ◽

Cited By ~ 18

Author(s):

Rim Ben Selma Mokni ◽

Houssem Rachdi

Keyword(s):

Method Of Moments ◽

North Africa ◽

Banking Sector ◽

Middle Eastern ◽

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.