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Determinants of Banking Distress and Merger as Strategic Policy to Resolve Distress

21 Pages Posted: 16 Feb 2009 Last revised: 23 Feb 2012

Jean-Michel Sahut

IPAG Business School

Mehdi Mili

University of Tunis - Institut Supérieur de Gestion (ISG), Tunis

Date Written: February 15, 2009

Abstract

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.

Keywords: banking distress, bank mergers, CAMEL rating, financial stability, MENA

JEL Classification: G21, G33, G35, G38

Suggested Citation

Sahut, Jean-Michel and Mili, Mehdi, Determinants of Banking Distress and Merger as Strategic Policy to Resolve Distress (February 15, 2009). Economic Modelling, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1343814

Jean-Michel Sahut (Contact Author)

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

Mehdi Mili

University of Tunis - Institut Supérieur de Gestion (ISG), Tunis ( email )

Sousse, Tunis 2000
Tunisia

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