Bank stability, performance and efficiency: an experience from West Asian countries

Abstract

PurposeThe banking sector in West Asia has always experienced positive growth except for Palestine. Apart from some negligible outlying outcomes in some countries that have faced political crises and war, most West Asian countries have gained bank profitability and efficiency. However, the stability in the banking sector has been rarely examined in the literature. Hence, this study sheds light on examining bank stability by considering 12 countries in West Asia.Design/methodology/approachA fixed effect panel data regression analysis is employed on strongly balanced panel data using data from 2004 to 2018.FindingsResults reveal that the net interest margin has a positive relationship with bank stability. The bank’s stability rises as the net interest margin improves. Furthermore, the non-interest income reveals a positive significant impact on the stability of banks, depicting that the increase in non-interest income increases the stability of banks. Additionally, the non-interest expense also reveals positive significant results with the stability of banks. Nevertheless, leverage ratio and long-term debt portray a negative significant impact on banks’ stability. The finding reveals that higher long-term debt and leverage ratios may decrease the stability of the banks in West Asia.Practical implicationsOverall, the authors’ findings add to the literature on the stability of the banks by providing some new but significant information. Some of the recommendations may be beneficial to the long-term success of 12 Western Asian countries’ banks.Originality/valueThe study examines the stability of banks by incorporating both profitability and operating efficiency along with net-interest income, which extends to the current literature’s insight.