Banking stability and efficiency in the MENA region : disentangling the impact of distress, competition and regulation

Karapappas, Angelos

Abstract

The core research subject of the thesis is banking stability. I explore banking stability and efficiency for the Middle East, North Africa (MENA) region and empirically disentangle the role of bank distress, competition and regulation using empirical research which is contained in three chapters (2,3 and 4). In Chapter 2, I firstly explore how bank distress (measured by two approaches) affects overall banking stability (using Z-score and non-performing loans) and additionally how these results are modified under different regulation and bank characteristics. Finally, the impact of the presence of Islamic banks is explored. To this end I employ a bank-level data set from322 banks operating in 19 MENA countries covering the period 2004 – 2015. The results show an overall strong negative effect of distress on banking stability, while stringent capital regulation, less restrictions on activities of the financial sector and less supervisory power appears to benefit banking stability. The presence of Islamic banks enhances bank stability. The analysis provides guidance for policy makers on how to strengthen the stability of the MENA banking system. In chapter 3, my focal point is bank competition and its relationship with bank stability following a two-part analysis. In the first part, I conduct an in-depth review of 279 empirical studies concerning the academic debate over whether the bank competition or concentration or market power has a positive or negative effect upon the bank risk or bank stability. This review not only covers one of the longest time periods (1990-2022) for literature reviews in this area but also the categorization of studies found more interesting and innovative based on the country or the region being investigated. The second part estimates the effect of competition on banking stability employing the commonly accepted, as unveiled in the review in the first part, LERNER and Boone competition indices. We use the same data set as in chapter 2 and apart from competition we use bank-level and country characteristics as control variables. Results using the GMM approach provide support to the competition-stability view. In chapter 4, I use a novel econometric model in order to explore the interrelationships between efficiency, competition, and stability. The econometric model is a single stage approach which using the Boone indicator allows the interdependence of competition. stability and (in)efficiency. The key contribution is that cost efficiency and stability efficiency are estimated jointly within a unified model that allows the interpretation of their relationship upon a common base. The results support the competition-stability view and provide implications for the stability and (in)efficiency of the MENA region, setting a novel way of estimation for studies on emerging markets for policy makers and researchers.

Citation

Karapappas, A. (2023). Banking stability and efficiency in the MENA region : disentangling the impact of distress, competition and regulation. (Thesis). University of Hull. https://hull-repository.worktribe.com/output/4292414

• Thesis Type: Thesis
• Deposit Date: May 19, 2023
• Publicly Available Date: May 19, 2023
• Public URL: https://hull-repository.worktribe.com/output/4292414
• Additional Information: Business School, The University of Hull
• Award Date: May 1, 2023