Banking stability, institutional quality, market concentration, competition and political conflict in MENA

Abstract

This paper uses panel data analysis via GMM estimation to investigate a number of contemporary issues regarding whether MENA banks’ stability and profitability are affected by market power and market concentration. Additionally, it investigates political issues that took place in late 2010 and 2011, as well as whether the quality of institutional environment contributed to shaping the financial performance of MENA banks and their stability.A large sample of banks was selected for a period (1999-2016) that includes the recent Global Financial Crisis period and Arab conflict. Findings confirm that the quality of institutional variables plays a major role in explaining bank performance and stability. Furthermore, banks operating in more concentred markets are able to exercise their market power to obtain higher returns, confirming that less competition and higher concentration would lead to deterioration in banking stability. However, results show that banking stability and profitability would be safeguarded if those banks with higher market power operate in better environment with high regulatory quality, emphasising that regulatory quality should be carefully considered to ensure the stability of financial systems and the national economy as whole.