Competition, stability and the efficiency channel in the Tunisian banking system

Abderazak Bakhouche

International Journal of Accounting, Auditing and Performance Evaluation, 2024, vol. 20, issue 1/2, 121-154

Abstract: Tunisia has expanded foreign capital entry and introduced Basel-based reforms to bolster bank efficiency, competition and stability. Although notable progress has been made, the increase in non-performing loans (NPLs) and susceptibility to adverse economic conditions remain significant threats to bank stability. This study examines the competition-stability nexus in the Tunisian banking sector from 2005 to 2020 and establishes whether cost efficiency plays a role in this relationship. The results reveal that competition reduces stability, supporting the competition-fragility thesis with an insignificant efficiency channel. Fragility heightens as banks become larger, while liquidity and diversification have a neutral effect. Inflation, GDP growth and the rule of law influence bank stability. Interestingly, the stability of government-owned, foreign-owned, and private banks does not significantly differ. This suggests that non-government ownership may pursue objectives other than enhancing stability. Consequently, there is a case for reviewing reform programs and redefining their objectives and procedures.

Keywords: bank competition; cost efficiency; stability; Lerner index; market power; Tunisia; Covid-19; Arab spring. (search for similar items in EconPapers)
Date: 2024
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