Market Structure and Determinants of Bank Profitability Among Middle East and North African (MENA) Banks

34 Pages Posted: 2 Dec 2015  

Konstantinos P. Vergos

University of Portsmouth - Portsmouth Business School

Hatem Elfeituri

University of Portsmouth - Portsmouth Business School

Date Written: November 27, 2015

Abstract

The study investigates the determinants of performance in MENA banking in both the context of Structure Conduct Performance (SCP) and efficiency hypothesis. It is the first of its kind that examines a large sample of banks (140 banks) for an extensive period (1999-2012), includes the after 2007-crisis period so it gives the ability to draw for the first time reliable conclusions for both the 2011 Arab uprising and, more importantly, to examine a whole economic area (MENA region) after the liberalisation and related transformation of the economies of MENA region We use panel analysis, and GMM estimation. Our findings confirms that there is a positive and significant relationship between net interest margins, profitability of commercial banks and capital adequacy implying that commercial banks in the MENA economies have lower needs for external funding and hence higher profitability. In respect to spending on technological items, fixed assets and software, findings indicate that spending on technology and fixed assets contribute in making banks more profitable as it is statically significant and positively related to bank’s performance. We also found that bank tends to invest in less risk investments. Bank size as measured by average total assets recorded a negative and significant relationship to net interest margin and profitability indicating diseconomies of scale. We also found that banks with foreign ownership are more profitable and perform better than state banks. The above show that despite the liberalisation of the sector, banks in this area are inefficient, with the only positive contribution being the involvement of foreign banks in the MENA region.

Keywords: Banks, Structure Conduct Performance, Capital Structure, Competition, Profitability, Regulation, Deregulation, MENA economies, GMM estimation

JEL Classification: C23, C26, F36, G21, F62, G31, G38, L41, M48, O16

Suggested Citation

Vergos, Konstantinos P. and Elfeituri, Hatem, Market Structure and Determinants of Bank Profitability Among Middle East and North African (MENA) Banks (November 27, 2015). Available at SSRN: https://ssrn.com/abstract=2697341

Konstantinos Vergos (Contact Author)

University of Portsmouth - Portsmouth Business School ( email )

Portland Street
Portsmouth, Hampshire P01 3DE
United Kingdom

Hatem Elfeituri

University of Portsmouth - Portsmouth Business School ( email )

Portsmouth, PO1 3DE
United Kingdom

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