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The Nexus among Competition, Risk and Performance in Banking Sector of Saudi Arabia

Nazish Iftikhar, Nadeem Iqbal and Hasan Hanif

Journal of Economic Impact, 2021, vol. 3, issue 3, 196-201

Abstract: The determination behind this research paper is to inspect the relation among competition, risk, and financial performance in the Saudi Arabian banking sector for 2011-2019. This paper used Two steps Generalized Method of Moment (GMM) as an estimation technique. This study focused on Lerner Index and Herfindahl-Hirschman Index to gauge bank competition and used three alternative measures for risk, namely credit risk, liquidity risk, and z-score. The coefficients of the Lerner Index and Herfindahl-Hirschman Index are significant and positive with profitability which signifies that higher competition in Saudi Arabian banks led to a decrease in profitability which is explained in the Structural Conduct Performance Hypothesis. Z-score shows a significant positive relationship with profitability. Credit risk has a positive relationship with profitability reveals that risk-adjusted returns are being targeted by risk-averse shareholders trying to gain more profits to compensate for the higher credit risk. The outcome of the study provides a comprehensive framework to the Central bank and other regulatory authorities to introduce micro and macro prudential policies that are aligned to the stability of the financial system.

Keywords: Competition; Risk; Profitability; Saudi Arabian Banks (search for similar items in EconPapers)
Date: 2021
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