Do MENA Banks Withstand Uncertainty? Evidence from Bank Stability

This paper aims to investigate the effect of global uncertainty as measured by the World Uncertainty Index (WUI) on bank stability in the MENA region. It uses a sample of 69 MENA banks over the period 2005–2022 and performs the System Generalized Method of Moments (SGMM). Due to several economic, financial, and regulatory differences, the whole sample was divided into two sub-samples. The first covers 51 banks located in the Middle Eastern region, while the second is relative to 18 banks located in North Africa. Overall, the empirical findings support the negative effect of WUI on bank stability. However, the results of the disaggregate analysis show that this effect differs across regions. We found that WUI significantly decreases bank stability in the Middle Eastern region. However, no significant effect for banks located in North Africa was found. The results of this study are robust when using two other metrics of bank stability. We found that uncertainty increases both portfolio risk and leverage risk for the whole sample and banks in the Middle East.