Banking distress in MENA countries and the role of mergers as a strategic policy to resolve distress

Abstract

Abstract. This paper studies bank distress in MENA countries and addresses the question of whether mergers are commonly considered as a solution for resolving individual bank distress. Both specific bank levels and macro variables are deployed to predict banking distress. In line with other recent papers, we challenge the view that specific bank indicators such as CAMEL category and bank size are significant determinants of bank distress. Our findings indicate that monetary policy indicators do not really affect bank distress in MENA countries. Overall, we suggest that bank capitalization and regulatory supervision needs to be given enough consideration to avoid individual distress in the banking sector. Our empirical study shows that 67% of the distressed banks in our sample are involved in merger transactions and that poor financial status systematically increases the likelihood of a bank being involved in a merger. Distressed state-owned banks and large-sized banks are less likely to be a target in a merger transaction. However, global economic conditions do not affect the decision of distressed banks to initiate a merger policy.JEL: G21, G33, G35, G38.

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