Assessing Prudential Compliance and Solvency in Tunisian Commercial Banks

Purpose: This study investigates the effect of bank risk ratios—credit risk, market risk, interest rate risk, and liquidity risk—as well as internal factors such as profitability and bank size—on the solvency of Tunisian banks, measured by the Risk Coverage Ratio (RCR). Design/methodology/approach: The study uses a sample of 10 Tunisian banks over the period 2010–2023. An econometric analysis is conducted using the Generalized Method of Moments (System GMM) to examine the relationship between bank risk indicators, internal bank characteristics, and solvency. Findings: The results show that market risk and interest rate risk positively contribute to bank solvency, while liquidity risk negatively affects it. Credit risk does not have a statistically significant impact on solvency in this context. Additionally, larger banks tend to have better risk coverage, whereas profitability shows a negative effect on solvency. Practical implications: The findings emphasize the importance of integrated risk management and the implementation of appropriate prudential policies to strengthen the resilience and stability of the Tunisian banking sector. Originality value: This study provides empirical evidence on the combined effects of multiple bank risk ratios and internal bank characteristics on solvency in the Tunisian banking sector using a System GMM approach over a recent and extended period (2010–2023).