The effects of bank competition, financial stability and ownership structure: evidence from the Middle East and North African (MENA) countries

Abstract

Purpose

This study aims to show the relationship between competition, financial stability and ownership structure of banks in the Middle East and North African (MENA) countries.

Design/methodology/approach

This study uses the generalized method of moments (GMM) estimators to generate research results. This study uses an unbalanced panel dynamic data set. It covers the period 2011 to 2017 in MENA banks.

Findings

This study implies that there is a significant and positive relationship between market power and the financial stability of banks in MENA countries. It explains a competitive market focus on credit risk, which turns them risky. From the bank’s ownership view, Islamic banks are in a less risky position which means Islamic banks are more stable than other ownership structures. On the other hand, government specialized institute displays their poor financial stability and risky from other ownership structures. Unfortunately, there is no significant impact of ownership structure on competition unless Islamic banks prove that they (Islamic banks) perform better in market power.

Practical implications

The empirical findings of this study suggest that MENA banks should improve the process of managing and monitoring the non-performing loan (loan segment business). It reduces the level of credit risk, which leads to achieving more profit. It also recommends that loan quality should improve immediately in this region for declining financial disruption. Based on the ownership structure, policymakers and stakeholders should adjust their risk and financial stability. Notably, the stakeholders can focus on Islamic banks in this region as this type of ownership structure showing superiority over other ownership structures.

Originality/value

This study is based on the latest data set and produced outcomes by using a GMM estimator. It also uses multiple measures of competition and risk variables to get robust results. Moreover, to the best of the knowledge, this study is the pioneer to examine the competition, risk (financial stability) and ownership structure of banks in the MENA countries.

Citation

Moudud-Ul-Huq, S., Biswas, T., Abdul Halim, M., Mateev, M., Yousaf, I. and Abedin, M.Z. (2022), "The effects of bank competition, financial stability and ownership structure: evidence from the Middle East and North African (MENA) countries", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 15 No. 4, pp. 717-738. https://doi.org/10.1108/IMEFM-05-2020-0214