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The Impact of Market Power, Credit Risk, and Economic Environment on the Stability of the Arab Banking Sector

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  • Rami Obeid

Abstract

The paper presents an investigation of the dialectical relationship between banking concentration and the stability of the banking sector, using data from twelve Arab countries for the period 2014-2019 in the framework of a dynamic panel data model. The findings show that the banking sector in the Arab countries follows the "Concentration-Stability" hypothesis. That is, banking concentration has a significant positive impact on bank stability. The paper explains that this result is due to two main reasons. The first reason is that large banks tend to manage their assets and capital more efficiently compared to smaller banks, while the second reason is that systemically important banks (DSIBs) are subject to additional quantitative and qualitative regulatory requirements, especially after the global financial crisis in 2008. The paper also reveals that economic growth has a significant positive effect on bank stability, while credit risk has a significant negative impact on bank stability. The paper suggests encouraging the merger of small banks, as this leads to enhancing their operational efficiency, strengthening their financial positions, and supporting their ability to absorb potential shocks.

Suggested Citation

  • Rami Obeid, 2023. "The Impact of Market Power, Credit Risk, and Economic Environment on the Stability of the Arab Banking Sector," International Business Research, Canadian Center of Science and Education, vol. 16(10), pages 1-1, October.
    • Handle: RePEc:ibn:ibrjnl:v:16:y:2023:i:10:p:1
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    References listed on IDEAS

    as
    1. Arnoud W. A. Boot & Anjan V. Thakor, 2000. "Can Relationship Banking Survive Competition?," Journal of Finance, American Finance Association, vol. 55(2), pages 679-713, April.
    2. Rami Obeid & Mohammad Adeinat, 2017. "Determinants of Net Interest Margin: An Analytical Study on the Commercial Banks Operating in Jordan (2005-2015)," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 515-525.
    3. Christos K. Staikouras & Anastasia Koutsomanoli‐Fillipaki, 2006. "Competition and Concentration in the New European Banking Landscape," European Financial Management, European Financial Management Association, vol. 12(3), pages 443-482, June.
    4. Rami Obeid & Bassam Awad, 2017. "Effectiveness of Monetary Policy Instruments on Economic Growth in Jordan Using Vector Error Correction Model," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(11), pages 194-206, November.
    5. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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