Efficiency, market concentration and bank performance during the COVID-19 outbreak: Evidence from the MENA region.

This study aims to contribute to the existing literature that explores the impact of market concentration on bank efficiency in emerging economies. Using a sample of 225 banks in 18 countries in the Middle East and North Africa (MENA) region over the period 2006-2020, we empirically investigate the significance of this relationship. Since the evidence of concentration effect on efficiency during the COVID-19 outbreak is ambiguous, we test the hypothesis that the efficiency is positively affected by the level of banking market concentration in the MENA region. We adopt fixed effect model specifications and test the robustness of our results with the two-step Generalized Method of Moments (GMM) estimation technique. Our analysis finds a strong positive association between market concentration and bank efficiency. The analysis of different types of banking systems that co-existing in the MENA region (Islamic and conventional) indicates the market concentration effect is more pronounced when the banking institution is Islamic and during the COVID-19 outbreak. Moreover, the better economic performance of Islamic banks during the initial stage of pandemic further increases their efficiency. Our analysis indicated that the impact of market competitive conditions on bank efficiency varies significantly across banks with different ownership structures and is more pronounced for government-owned banks. The results are robust using different model specifications and alternative estimation techniques.

Bank performance before and during the COVID-19 crisis: Does efficiency play a role?

This study aims to evaluate the effect of efficiency and banking market structure on bank performance in the Middle East and North Africa (MENA) region. The relationship between efficiency and bank performance in the countries in the MENA region during the COVID-19 outbreak has not been examined. We use data for 225 banks in 18 MENA countries and find that bank performance strongly depends on the efficiency level and market power of banks. Furthermore, we investigate whether efficiency and market competition effects are significantly different between the two banking systems (Islamic and conventional). Our results indicate that efficiency and competition have a greater influence on the profitability level of conventional than Islamic banks. However, the efficiency impact is only marginally significant during the COVID-19 outbreak. Overall, our results suggest that managing a higher efficiency level leads to improved financial stability but, at the same time, increases the bank's appetite for taking higher risks. These findings deepen the existing notion that efficient banks are more resilient during global financial crises and emphasize the importance of bank regulatory reforms that boost efficiency in standing against the negative consequences of the recent (COVID-19) crisis.

Capital regulation, competition and risk-taking: Policy implications for banking sector stability in the MENA region

This paper investigates how capital requirements and bank competition affect banks' financial soundness in the Middle East and North Africa (MENA) region. We test the hypothesis that regulatory capital positively impacts the risk-taking behavior of Islamic and conventional banks in the MENA region. The analysis indicates that the capital adequacy ratio has no significant influence on the credit risk of Islamic banks;however, market competition does play a significant role in shaping the risk behavior of these institutions. We report the opposite result for conventional banks – an increase in the minimum capital requirements is associated with an increase in their risk level. We also find that Islamic and conventional banks experience a non-linear relationship between market concentration and bank risk. Our findings inform regulatory authorities concerned with improving banking sector’s stability in the MENA region to strengthen their policies to force banks to better align with capital requirements which is highly important during the COVID-19 pandemic.

Competition, capital growth and risk-taking in emerging markets: Policy implications for banking sector stability during COVID-19 pandemic.

This paper investigates how banking competition and capital level impact on the risk-taking behavior of banking institutions in the Middle East and North Africa (MENA) region. The topic is perceived to be of significant importance during the COVID-19 pandemic. We use data for more than 225 banks in 18 countries in the MENA region to test whether increased competition causes banks to hold higher capital ratios. Employing panel data techniques, and distinguishing between Islamic and conventional banks, we show that banks tend to hold higher capital ratios when operating in a more competitive environment. We also provide evidence that banks in the MENA region increase their capitalization levels in response to a higher risk and vice versa. Further, banking concentration (measured by the HH-index) and credit risk have a significant and positive impact on capital ratios of IBs, whereas competition does play a restrictive role in determining the level of their capital. The results hold when controlling for ownership structure, regulatory and institutional environment, bank-specific and macroeconomic characteristics. Our findings inform regulatory authorities concerned with improving the financial stability of banking sector in the MENA region to strengthen their policies in order to force banks to better align with capital requirements and risk during the COVID-19 pandemic.