Does Ownership Structure Matter for Bank Performance in the MENA Region? An Empirical Evidence

Abstract

The aim of this study is to examine the effect of bank ownership structure on bank performance in Middle East and North Africa (MENA) region using the balanced scorecard (BSC) method. Usinga panel data of 137 commercial banks during the period from 2010 to 2014 across twelve countries in the MENA region, the study highlights the effect of ownership type and concentration on bank performance using the balanced scorecard as a performance measurement technique. The results show that government ownership and foreign ownership have statistically significant positive effect on bank performance measured by BSC index. On the contrary, domestic private ownership and ownership concentration have statistically significant negative effect on bank's BSC index. Additional analysis on each of the BSC perspective separately reveals that ownership concentration is negatively correlated with the customer and learning and growth factors, while positively correlated with the internal process factor. Government ownership shows statistically significant negative effect on the financial factor and the internal process factor while associated with statistically significant positive effect on the customer factor. Foreign ownership has statistically significant positive effect on the financial and the internal process factor but does not have statistically significant effect on the other two perspectives. Finally, Domestic private ownership reveals a statistically significant negative effect on the learning and growth factor.

The Effects of Ownership Structure on Bank Profitability

“…Regression results show that government ownership negatively affects bank profitability as measured by ROE. This result is consistent with prior studies done by Micco, Panizza and Yanez and by Fathi and El-Bannan which both state that government ownership shows statistically significant negative effect on bank profitability [10,26]. The poor financial performance of governmental banks can be attributed to the fact that government banks are social welfare-maximizing organizations that focus on economic and social growth.…”

“…Lastly the control variable size has a positive, significant effect on bank profitability, meaning larger banks tend to be more profitable than smaller ones due to increasing return to scale. This is consistent with Haque and Shahid [7] and Fathi and El-Bannan [26], which state that large banks can better take advantage of existing economies of scale to achieve higher levels of profitability.…”

State ownership and bank performance: conventional vs Islamic banks

“…The means test differentiates between two different periods, before and after the world financial crisis period during 2008 -2009. Generally speaking, the results in Table 2 show an almost consistent pattern concerning the superiority of state banks compared to private banks, which supports the conclusions of Rosalina and Nugraha (2019) and Fathi and Elbannan (2017), although there seem to be conspicuous changes in the magnitude of the performance measures before and after the financial crises period, as well as in the magnitude of the significance level. For example, for the conventional banks' ROA,…”

“…Replacing the ownership variable with the type of ownership (a dummy variable that equals 1 if state ownership is greater than 20%) also yields a similar significant result with respect to the influence of state ownership on the profitability of conventional banks. This finding is in line with those of Fathi and Elbannan (2017) and Rosalina and Nugraha (2019) but contradicts those of Barth et al (2001), Kobeissi and Sun (2020), and partially those of Shawtari (2018) and Haddad et al (2020).…”

“…Conversely, Fathi and Elbannan (2017) examined the influence of ownership structure on bank performance for 137 banks in the MENA (the Middle East and North Africa) region during the period 2010 to 2014. Employing the balanced scorecard (BSC) methodology, they State ownership and bank performance documented a positive effect of government ownership on bank performance as measured by the BSC index, arguing that private ownership is significantly associated with negative performance.…”