Determinants of Banking Distress and Merger as Strategic Policy to Resolve Distress
University of Applied Sciences - Geneva School of Business Administration; University of Poitiers
University of Sousse - Institut Supérieur de Gestion (ISG), Tunis
February 15, 2009
Economic Modelling, Forthcoming
This paper studies bank distress in MENA country and addresses the question of whether mergers are commonly considered as a solution for resolving individual bank distress. Both specific bank levels and macro variables are deployed to predict banking distress. In line with other recent papers, we challenge the view that specific bank indicators such as CAMEL category and bank size are significant determinants of banking distress. Our findings indicate that monetary policy indicators do not really affect banking distress in MENA countries. Overall, we suggest that bank capitalization and regulatory supervision needs to be given enough consideration to avoid individual distress in the banking sector. Our empirical study shows that 67% of the distressed banks in our sample are involved in merger transactions and that poor financial status systematically increases the likelihood of a bank being involved in a merger. Distressed state-owned banks and large-sized banks are less likely to be a target in a merger transaction. However, global economic conditions do not affect the decision of distressed banks to initiate a merger policy.
Number of Pages in PDF File: 21
Keywords: banking distress, bank mergers, CAMEL rating, financial stability, MENA
JEL Classification: G21, G33, G35, G38Accepted Paper Series
Date posted: February 16, 2009 ; Last revised: February 23, 2012
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