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Competition and bank stability in the MENA region: The moderating effect of Islamic versus conventional banks

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  • Albaity, Mohamed
  • Mallek, Ray Saadaoui
  • Noman, Abu Hanifa Md.

Abstract

This paper investigates the impact of competition on bank stability using data from 276 banks across eighteen MENA countries between 2006–2015. We controlled for financial inclusion, productivity, and macroeconomic instability in addition to several different control variables, including bank size, efficiency, diversification and leverage. The two-step system GMM suggested that banks facing little competition tended to take less insolvency and credit risks and enjoy more profitability. Furthermore, we found that the competition-fragility effect is more prominent for Islamic banks than conventional ones in MENA countries. This study contains some significant policy implications for regulators looking to improve bank stability.

Suggested Citation

  • Albaity, Mohamed & Mallek, Ray Saadaoui & Noman, Abu Hanifa Md., 2019. "Competition and bank stability in the MENA region: The moderating effect of Islamic versus conventional banks," Emerging Markets Review, Elsevier, vol. 38(C), pages 310-325.
  • Handle: RePEc:eee:ememar:v:38:y:2019:i:c:p:310-325
    DOI: 10.1016/j.ememar.2019.01.003
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    Keywords

    Banking stability; fragility/stability; Size; Moderation; Competition; Productivity; Financial inclusion;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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