Threshold effects of liquidity risk and credit risk on bank stability in the MENA region

Nesrine Djebali and Khemais Zaghdoudi

Journal of Policy Modeling, 2020, vol. 42, issue 5, 1049-1063

Abstract: This paper studies the relationships between both liquidity and credit risks on bank stability for a panel data set of 75 conventional banks belonging to 11 countries of the MENA region observed during the period 1999–2017. By performing a Panel Smooth Threshold Regression (PSTR) model developed by Gonzalez et al. (2005), estimation results show that the relationships between bank stability-credit risk and bank stability-liquidity risk are non-linear and characterized by the presence of two optimal thresholds which are equal to 13.16% for credit risk and 19.03% for liquidity risk. Contrary to their positive effects below these optimal thresholds, credit risk and liquidity risk become detrimental to bank stability in high regime.

Keywords: Liquidity risk; Credit risk; Bank stability; PSTR model; MENA region (search for similar items in EconPapers)
JEL-codes: F3 F36 G21 G28 O16 O53 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:42:y:2020:i:5:p:1049-1063

DOI: 10.1016/j.jpolmod.2020.01.013

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