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Liquidity and bank risk-taking in the MENA region

Author

Listed:
  • Salihu Liman Mairafi
  • Sallahuddin Hassan
  • Shamsul Bahrain Mohamed-Arshad

Abstract

This paper examines the effect of liquidity on bank risk-taking in the MENA region during the period 2005-2017. Using a fixed effects model with panel-corrected standard error, we found that funding liquidity, liquidity risk, and bank activities significantly influence the banks' risk-taking behaviour. However, the effect varies with risk-taking proxies and the size of banks. While the results for funding liquidity and risk-taking using the standard deviation of return on asset revealed insignificant, using the z-score, the results revealed a significant effect. Nonetheless, both the results for liquidity risk and bank activities are significant. This result entails that liquidity and bank risk-taking behaviour differ with countries' peculiarities. Thus, liquidity regulation should be implemented with the consideration of other region and their peculiarities. Furthermore, this study provides additional insight from a region with distinct peculiarities and challenges with liquidity management tools using additional risk-taking proxies and alternative methods of analysis.

Suggested Citation

  • Salihu Liman Mairafi & Sallahuddin Hassan & Shamsul Bahrain Mohamed-Arshad, 2025. "Liquidity and bank risk-taking in the MENA region," International Journal of Services and Operations Management, Inderscience Enterprises Ltd, vol. 50(4), pages 534-555.
    • Handle: RePEc:ids:ijsoma:v:50:y:2025:i:4:p:534-555
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