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The Impact of Ownership and Regulations on Bank Risk-Taking: Evidence from the Middle East and North Africa (MENA) region

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  • Faisul Haque

Abstract

This paper examines how bank regulations and ownership structure individually and interactively influence bank risk-taking behaviour. We use generalised method of moments (GMM) estimation technique to analyze unbalanced panel data on 153 commercial banks from 12 Middle East and North Africa (MENA) countries. Predictably, foreign ownership is found to be inversely related to portfolio risk in all specifications, while government ownership shows positive association with portfolio risk only among the non GCC (Gulf Cooperative Council) banks. We also find supervisory power having a positive effect on portfolio risk and a negative effect on credit risk, whereas activity restrictions show opposite effects on these two risk measures. In addition, these effects are reinforced for banks with higher ownership concentration and/or higher government ownership. The GCC banks show better results in relation to negative effects of capital regulations and market discipline on portfolio risk, although these effects are inconclusive in other specifications. Overall, our study results call for an increased activism of the policymakers and regulators in enforcing regulatory reform initiatives relating to ownership and other bank regulations.

Suggested Citation

  • Faisul Haque, 2014. "The Impact of Ownership and Regulations on Bank Risk-Taking: Evidence from the Middle East and North Africa (MENA) region," CFI Discussion Papers 1402, Centre for Finance and Investment, Heriot Watt University.
    • Handle: RePEc:hwe:cfidps:1402
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    More about this item

    Keywords

    Ownership structure; bank regulations; risk-taking; MENA countries;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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