![Sample our Economics, Finance,Business & Industry journals, sign in here to start your access, latest two full volumes FREE to you for 14 days]({"type":"image" , "src" : "/sda/5931/TOC-Subject-Sample-2021-Economics-Finance-Business-Industry.jpg"})
Abstract
In this article, we test the potential impact of the owner’s identity on banks’ capital adequacy and liquidity risk as defined by the Basel III regulatory framework. Using a unique dataset on a sample of banks domiciled in the Middle East and North Africa region, we find that the ownership structure is an important driver of banks’ regulatory capital and liquidity risk. Private and foreign investors exhibit a stronger preference for higher levels of capital, whereas the impact of government ownership on banks’ risk remains inconclusive. Moreover, privately-owned banks evidenced lower levels of liquidity risk compared to the other groups during the last financial crisis because of tighter budget constraints and more compelling liquidity needs.
Funding
The authors want to thank the University of Sharjah that funded the project through a research grant (No. 140322).
Notes
1. Although full implementation of Basel III is set for 2018, many financial institutions started to comply with the new rules in 2013.
2. A review of the existing literature on the factors related to banks’ liquidity stress can be found at: http://www.bis.org/publ/bcbs_wp25.pdf.
3. The countries that make up the GCC are Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates. The union aims to achieve various goals, such as the integration of the national financial systems and the adoption of a single currency in the long term.
4. The authors use IMF data for the year 2008.
5. Iran is a notable exception. Due to international sanctions, the country has not yet started the implementation of Basel III although, the Iranian Central Bank is expected to deliver guidelines in the next future on the adoption of the new rules. In non-tabulated robustness tests we remove Iranian banks from the sample but the results are substantially similar to those presented in the article.
6. Our data do not permit the calculation of the Liquidity coverage ratio (LCR) which would require information about the daily cash flows of banking institutions.
7. The Basel Committee includes in the calculation of NSFR off-balance-sheet assets and liabilities as well. We considered the breakdown of on-balance-sheet items only, because standard datasets do not provide adequate coverage of off-balance-sheet items. Distinguin, Roulet, and Tarazi (Citation2013) faced the same problem for European banks.
8. We could have used dummies for each country but doing so could have produced biased estimates as the number of observations for some countries is low.
9. We are grateful to one reviewer for pointing this out. We control for the stake of other owners, only if they can be identified. In the listed firms, it is common to have a multitude of small investors, whose identity is not specified. In this case, we decide to not include them in the regression, insofar their influence on banks’ board decisions cannot be determined clearly.
10. We believe that it is unlikely that the global financial crisis might have had an impact on the financial statements of MENA banks in 2008. It is more reasonable to assume that any adverse consequences were materialized in 2009-onwards.
11. Brickley, Lease, and Smith (Citation1988) classified institutional investors into three groups according to whether they have potential business relationships with the investee firms and, hence, their sensitivity to management pressure. These groups include: pressure insensitive (public pension funds, mutual funds), pressure-sensitive (banks, insurers), and pressure indeterminate (corporate pension funds, investment banks, brokerage houses). Non-controlling blockholders of the banks in our sample belong predominantly to the second group.
12. These results are available from the authors upon request.
