Do banks effectively manage their risks? The role of risk governance in the MENA region

Aljughaiman, Abdullah A.; Salama, Aly

doi:10.1016/j.jaccpubpol.2019.106680

Cited by 53 publications

(46 citation statements)

References 71 publications

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“…Regarding bank characteristics, we found that bank size increases the level of NPLs, but does not affect the other indicators of bank stability. Large banks might take advantage of their too-big-to-fail reputation, which might motivate them to take more risks (Aljughaiman and Salama, 2019). Searching for a greater loan market share, large banks tend to grant loans to lower-quality borrowers with insufficient guarantees (Stern and Feldman, 2004).…”

Section: Resultsmentioning

confidence: 99%

Multiple large shareholders and bank stability: the case of MENA banks

Boussaada

2021

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PurposeThis study aims to investigate how multiple large shareholders individually and interactively influence Middle East and North Africa (MENA) bank stability.Design/methodology/approachThe empirical framework is based on a generalized dynamic two-step system and utilizes the method of moments estimation to analyze a panel dataset of 532 bank-year observations over the 2004–2017 period.FindingsThe estimation results show that large shareholders are crucial in explaining the differences in bank stability among MENA banks. Specifically, the first- and second-largest shareholders exacerbate bank instability. However, we found that the third-largest shareholder enhances bank stability. Additionally, the coalition between the two largest shareholders increases the moral hazard problem in MENA banks and significantly decreases stability. Meanwhile, the interaction between the three largest shareholders is associated with a control contestability problem, which impels better bank stability. The results support the dispersion effect of multiple large shareholders in MENA countries.Originality/valueThe role of large shareholders in corporate governance is widely recognized. However, very little is known about the role and the real impact that multiple large shareholders may have on the banking sector. To the best of the authors' knowledge, this work is the first to analyze the relationship between multiple large shareholders and bank stability in the MENA region.

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Section: Resultsmentioning

confidence: 99%

Multiple large shareholders and bank stability: the case of MENA banks

Boussaada

2021

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“…To check the robustness of the results, this study also uses some alternative measures of bank stability. First, we use the natural logarithm of the Z-score, which has also been used in previous studies ( Aljughaiman and Salama, 2019 ; Houston et al., 2010 ). Second, we use the proportion of non-performing loans to total loans (NPLS) as a dependent variable.…”

Section: Data Description and Methodologymentioning

confidence: 99%

Oversight of bank risk-taking by audit committees and Sharia committees: conventional vs Islamic banks

Nguyen

2021

Heliyon

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By utilizing the Fixed effect and GMM estimators for a sample of 57 Islamic banks and 102 conventional banks from 10 countries for the period 2002–2018, we examine the effect of the audit committees' and Sharia committees' effectiveness on the bank risk-taking behavior and its transmission mechanisms. The results reveal that an audit committee's independence, number of meetings, and financial expertise negatively affect conventional banks' risk-taking, suggesting that the high effectiveness of their audit committees may constrain banks' risk-taking activities. However, no such relationship is evident or observed case of Islamic banks. Instead, with a different transmission mechanism, the proportion of female members and the financial expertise in the Sharia committees negatively affect risk-taking, but the Sharia committee size positively affects risk-taking in Sharia banks. These results indicate that a Sharia committee's high effectiveness can constrain risk-taking behaviors in Islamic banks.

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“…First, we used ROE as an additional dependent variable to measure bank performance. Second, consistent with Wintoki et al (2012) and Aljughaiman and Salama (2019), we used the GMM system dynamic panel estimator to control for endogeneity problems and to confirm that our results were correct. Table 7 shows the results for fintech services and firm growth/financial performance relationships using GMM specification models.…”

Section: Fintech Firms' Growth and Banks' Performancementioning

confidence: 86%

“…Following prior studies (Ky et al, 2019 ;Phan et al, 2020;Mollah & Zaman, 2015), we controlled for firm-level characteristics: bank size measured by the natural logarithm of total assets (S); capital ratio; total capital to total assets (CAP); loan size, which equals total loans to total assets (LS); loan loss provisions measured by dividing loan loss provisions by total loans (LLP); income diversification, which equals non-interest income to total income (NONIN); beta; the market risk computed using the CAPM model using the prior three years of returns (monthly) (B); and IB, measured as a dummy variable that takes the value of 1 if the bank is Islamic, and 0 if otherwise (Islamic). Consistent with the previous literature (e.g., Aljughaiman & Salama, 2019;Gafoor et al, 2018;Jaouad & Lahsen, 2018), we also controlled for corporate governance variables: the board size of directors, which reflects the number of members on the board (BS); and independent directors, as the percentage of independent directors on the board (IND). In addition, we controlled for macroeconomic variables, namely gross domestic product growth rate (GDP) and inflation rate (INF), as additional controls.…”

Section: Controlsmentioning

confidence: 95%

“…The sample for this study consisted of 40 listed banks in both banking systems, 18 of which were IBs and 22 were CBs from GCC countries over a period of 6 years, ranging from 2014 to 2019. 1 We filtered the sample following the three criteria used in the previous literature (e.g., Aljughaiman & Salama, 2019;Beck et al, 2013), as follows: (1) fintech data needed to be available, (2) each country had to have both types of bank, (3) the banks needed to be fully fledged CBs, and (4) the banks needed to have over three years' of data. The final sample included 240 bank-year observations for IBs and CBs, providing 108 and 132 bank-year observations for each sub-sample, respectively.…”

Section: Samplementioning

confidence: 99%

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Does financial technology matter? Evidence from an alternative banking system

Almulla

Aljughaiman

2021

Cogent Economics & Finance

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The purpose of this study is to examine the impact of the financial technology (fintech) services provided by banks on their performance. We also investigate the influence of fintech firms' growth (as competitor firms) on banks' financial performance. We extend our analysis to investigate the differences between conventional banks (CBs) and Islamic banks (IBs) in this relationship and utilise a sample of 40 listed banks from Gulf Cooperation Countries, where fintech growth was impressive in the period 2014-2019. We find a negative relationship between fintech services and bank performance for both types of bank. Furthermore, we show that the growth of fintech firms in a country negatively influences CBs' financial performance but has no significant impact on IBs' performance. In addition, we test our hypotheses through multiple additional tests and robustness tests, such as the generalised method of moments. The findings could be relevant to banks, policy makers, and academic research.

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Do banks effectively manage their risks? The role of risk governance in the MENA region

Cited by 53 publications

References 71 publications

Multiple large shareholders and bank stability: the case of MENA banks

Multiple large shareholders and bank stability: the case of MENA banks

Oversight of bank risk-taking by audit committees and Sharia committees: conventional vs Islamic banks

Does financial technology matter? Evidence from an alternative banking system

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