The Impact of Ownership and Regulations on Bank Risk-Taking: Evidence from the Middle East and North Africa (MENA) region

Faisul Haque

No 1402, CFI Discussion Papers from Centre for Finance and Investment, Heriot Watt University

Abstract: This paper examines how bank regulations and ownership structure individually and interactively influence bank risk-taking behaviour. We use generalised method of moments (GMM) estimation technique to analyze unbalanced panel data on 153 commercial banks from 12 Middle East and North Africa (MENA) countries. Predictably, foreign ownership is found to be inversely related to portfolio risk in all specifications, while government ownership shows positive association with portfolio risk only among the non GCC (Gulf Cooperative Council) banks. We also find supervisory power having a positive effect on portfolio risk and a negative effect on credit risk, whereas activity restrictions show opposite effects on these two risk measures. In addition, these effects are reinforced for banks with higher ownership concentration and/or higher government ownership. The GCC banks show better results in relation to negative effects of capital regulations and market discipline on portfolio risk, although these effects are inconclusive in other specifications. Overall, our study results call for an increased activism of the policymakers and regulators in enforcing regulatory reform initiatives relating to ownership and other bank regulations.

Keywords: Ownership structure; bank regulations; risk-taking; MENA countries (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2014
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