Evaluation of Banking Fragility: Evidence from Banks in the MENA Region

Kassem, Mohammad and Awdeh, Ali and EL-Moussawi, Chawki (2014): Evaluation of Banking Fragility: Evidence from Banks in the MENA Region. Published in: International Research Journal of Finance and Economics No. 124 (2014): pp. 139-149.

Abstract

This paper aimed to detect the impact of changes in the landscape of the banking sectors in 12 MENA countries on the fragility of banks over the period 2005-2011, using the Z-score indicator introduced by Scott (1981) and developed by Goyeau and Tarazi (1992). The empirical results show that Egypt, Jordan, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, UAE and Lebanon witnessed a decline in their fragility over the studied period. Conversely, Bahrain, Kuwait, and Turkey have experienced a worsening in their fragility. Secondly, the Z' indicator shows that Morocco, Tunisia and Lebanon recorded less risk exposure than other countries, which can be explained by a lower risk exposure and more sufficient levels of equity. Moreover, the results show that Jordan, Saudi Arabia and Lebanon have witnessed a decrease in their risk level, while other countries have experienced a deterioration of their fragility such as Bahrain, Oman, Qatar the UAE and Tunisia. Finally, the paper tested the impact of some micro- and macroeconomic factors on bank fragility, and found that the probability of default decreases with higher bank capital and with an increase in inflation rates, whereas it increases with higher bank liquidity, credit risk, and profitability.

• Item Type: MPRA Paper
• Language: English
• Keywords: Probability of default; Banking risk; Z-score; MENA banks.
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation

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