Bank performance and financial stability during the COVID-19 pandemic: lessons from the MENA region

Market concentration and efficiency are important determinants of banks' performance and stability during crises in the world. In order to test this hypothesis experimentally, a scientific study was conducted at the Higher Institute for Administrative Development at Damascus University. The study was entitled: “Bank performance and financial stability during the COVID-19 pandemic: lessons from the MENA region.”

This study investigates the role of market concentration and efficiency in banking system stability during the COVID-19 pandemic. A sample of 575 banks in 20 countries in the Middle East and North Africa (MENA) was used.

The results reveal that market concentration negatively affects bank profitability, whereas improved efficiency further enhances bank performance and contributes to the banking sector’s overall stability. Furthermore, analysis indicates that during the COVID-19 pandemic, bank stability strongly depended on the level of market concentration, but not on bank efficiency. However, more efficient banks are more profitable and stable if the banking institutions are Islamic. Similarly, Islamic banks with the same level of efficiency demonstrated better overall financial performance during the pandemic than their conventional peers did.

This study provides information that will enable bank managers and policymakers in MENA countries to assess the growing impact of market concentration and efficiency on the banking sector stability. It also helps them in formulating suitable strategies to mitigate the adverse consequences of the COVID-19 pandemic.

The recommendations of the study are useful guides for policymakers and regulators in countries where Islamic and conventional banking systems co-exist and compete, based on different business models and risk management practices.