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

Naama Trad (Université Lumière Lyon II, Lyon, France)
Houssem Rachdi (HEC Carthage Business School, University of Carthage, Tunis, Tunisia)
Abdelaziz Hakimi (Faculty of Law, Economics and Management, University of Jendouba, Jendouba, Tunisia)
Khaled Guesmi (Department of Finance, IPAG Business School, Paris, France)

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 21 August 2017

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Abstract

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.

Keywords

Citation

Trad, N., Rachdi, H., Hakimi, A. and Guesmi, K. (2017), "Banking stability in the MENA region during the global financial crisis and the European sovereign debt debacle", Journal of Risk Finance, Vol. 18 No. 4, pp. 381-397. https://doi.org/10.1108/JRF-10-2016-0134

Publisher

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Emerald Publishing Limited

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