The impact of state and foreign ownership on banking risk: Evidence from the MENA countries

• We analyze the impact of foreign and state ownership on banking risk in a sample of commercial banks from the MENA region.
• State ownership encourages banks to take more risks and foreign ownership reduces risk-taking.
• State-owned banks tend to increase capital adequacy ratio to hedge against high level of risk.
• All categories of owner take a prudent attitude that influences risk reduction after the 2008 crisis.

This paper investigates the impact of foreign and state ownership on banking risk. Panel data regression analysis is applied to a sample of 171 commercial banks from the MENA region during the 2006–2012 period. Two-stage least-squares analysis is conducted. Our results show that State ownership encourages banks to take more risks while foreign ownership reduces risk-taking. In addition, state-owned banks tend to increase capital adequacy ratio to hedge against high level of risk. Our finding also indicates that all categories of shareholders take a prudent attitude that influences risk reduction after the 2008 crisis.