Competition, concentration and risk taking in Banking sector of MENA countries

This paper tests the relationship between competition and bank stability for 356 banks operating in the Middle East North Africa (MENA) countries during the period 2005-2012. Our results show that for the overall sample, a U-shaped relationship between competition and banks' risk taking for MENA banks. The negative linear relationship between Z-Score and H-statistics in Gulf countries shows that an increase in competition leads to a reduction in the level of financial stability. In the case of other non-Gulf countries, the increase of competition in uncompetitive markets can lead to an increase in stability. The results confirm the importance of the market structure as an explanatory factor for financial stability, but also indicate that concentration is not associated with uncompetitive markets.