Diversification and bank stability in the MENA region

Abstract

Both regulators and policymakers are now very interested on the hazy relationship between diversification (income, asset, and fund) and bank stability, which remains elusive. This is also unknown how the diversification affects the stability of financial organizations. This study focuses on diversification, country governance index, bank profitability, and its effect on the stability of banks. With the study period of the dataset from 2012 to 2021, a fixed-effect panel data regression analysis is conducted utilizing a collection of 10 MENA countries: Bahrain, Egypt, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, Sudan, Turkey, and the United Arab Emirates. The study reveals that asset and fund diversification may have a negative impact on bank stability, while income diversification may lead to greater stability. Additionally, the research suggests that a stronger country governance index and higher net interest margin are linked to increased bank stability in the 10 MENA countries analyzed. In summary, stronger governance and profitability can contribute to the overall stability of the banking sector in these regions.

Keywords

• Income
• Asset
• Fund
• Diversification
• Country governance index
• Net interest margin