Do Bank Competition and Risk-Taking Matter for Performance in the MENA Countries?

Abstract

This paper analyzes the impacts of bank competition and risk-taking on performance in MENA countries. We use an unbalanced panel dataset over the period 2011-2017 for the MENA countries. This study uses the two-stage least square (2SLS) estimator to test the results, and we use the generalized method of moments (GMM) to test the robustness check. Aftermaths of the data analysis, it finds that lower competition has a benefit in both risk and financial stability. Hence, the lower competition will reduce the risk-taking behavior. As a result, it will increase the financial stability in the banking systems. Our results show the inverse relation of the structure conduct performance (SCP) hypothesis. Our results also show that the MENA country's (banks) profitability is significantly affected by the size, taxation, cost management, capitalization, GGDP, and inflation. Finally, the study also recommends some policy implications for example MENA countries should shrink tax rates for Islamic banks as well as commercial banks; tax burden should hand over from bank authority to potential buyers. They should focus on the development of the banking sector and employ more skilled and experienced staff. Islamic Bank should restructure to disburse loans and raise capital. The focus should be on promoting them through the diversified activities of Islamic Banks.