Volume 8, Issue 3, May 2020, Page: 107-114
Cost Efficiency, Market Power, Solvency Risk, and Capital Adequacy for Listed Banks in Egypt
Aly Saad Mohamed Dawood, Department of Business Administration, Faculty of Management, Sadat Academy for Management Sciences, Cairo, Egypt, Seconded to Faculty of Business & Economics, Heliopolis University for Sustainable Development, Cairo, Egypt
Received: Mar. 26, 2020;       Accepted: Apr. 26, 2020;       Published: May 14, 2020
DOI: 10.11648/j.jfa.20200803.11      View  252      Downloads  131
This research aims to investigate the stability of Egyptian banks’ performance by measuring causal interrelation measurements between efficiency, market power, banks risk-taking, and capital adequacy variables, which might help decision-makers in banking system to direct their efforts in handling them. The data are collected from Egyptian Information Dissemination for the period from 2013 to 2017 for both income statement and balance sheet. These data are utilized to estimate cost efficiency, market power and calculate the banks risk-taking by using Front 4.1 package and multi-regressions have been applied to measure the causal interrelation between the above-mentioned variables. The results show that Union National Bank Egypt and Export Development Bank have the highest cost efficiency. And, Union National Bank Egypt and Egyptian Gulf Bank have the highest market power, while Suez Canal Bank and Qatar National Bank Alahly have the lowest market power. But low standard deviation range show that there is no significant effort for enhancing neither cost efficiency nor market power. The regression analysis of causal interrelation shows that capital adequacy ratio significantly responds positively to market power and negatively to cost efficiency, as such risk-taking significantly responds positively to both cost efficiency and market power, while both capital adequacy ratio and risk-taking are not responding significantly to each other. And, cost efficiency significantly responds negatively to capital adequacy and positively to both market power and bank risk-taking, moreover market power significantly responds positively to capital adequacy and negatively to both cost efficiency and bank risk-taking. Most results are consistent with literature review except capital adequacy ratio and risk- taking is not responding significantly to each other this may be addressed by some of activated acts of law 88 year 2003 that limit risk-taking for many risk types.
Banks Costs Efficiency, Banks Market Power, Banks Risk-taking, Banks Capital Adequacy
To cite this article
Aly Saad Mohamed Dawood, Cost Efficiency, Market Power, Solvency Risk, and Capital Adequacy for Listed Banks in Egypt, Journal of Finance and Accounting. Vol. 8, No. 3, 2020, pp. 107-114. doi: 10.11648/j.jfa.20200803.11
Copyright © 2020 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Fiordelisi, F., Marques-Ibanez, D., & Molyneux, P. (2011). Efficiency and risk in European banking. Journal of Banking and Finance, 35 (5), 1315–1326. https://doi.org/10.1016/j.jbankfin.2010.10.005.
Tan, Y., Floros, C., & Anchor, J. (2017). The proftability of Chinese banks: Impacts of risk, competition and efficiency. Review of Accounting and Finance, 16 (1), 86–105. https://doi.org/10.1108/RAF-05-2015-0072.
Fang, J., Lau, C. K. M., Lu, Z., Tan, Y., & Zhang, H. (2019). Bank performance in China: A Perspective from Bank efficiency, risk-taking and market competition. Pacific Basin Finance Journal, 56, 290–309. https://doi.org/10.1016/j.pacfin.2019.06.011.
Zhang, J., & Jiang, H. (2018). Capital regulatory pressure, charter value and bank risk-taking: empirical evidence for China. Journal of Financial Regulation and Compliance, 26 (1), 170–185. https://doi.org/10.1108/JFRC-01-2017-0002.
Sarkar, S., & Sensarma, R. (2016). The relationship between competition and risk-taking behaviour of Indian banks. Journal of Financial Economic Policy, 8 (1), 95–119. https://doi.org/10.1108/JFEP-05-2015-0030.
Raz, A. F. (2018). Risk and capital in Indonesian large banks. Journal of Financial Economic Policy, 10 (1), 165–184. https://doi.org/10.1108/JFEP-06-2017-0055.
Sarkar, S., Sensarma, R., & Sharma, D. (2019). The relationship between risk, capital and efficiency in Indian banking: Does ownership matter? Journal of Financial Economic Policy, 11 (2), 218–231. https://doi.org/10.1108/JFEP-05-2018-0074.
Nurboja, B., & Košak, M. (2017). Banking efficiency in South East Europe: Evidence for financial crises and the gap between new EU members and candidate countries. Economic Systems, 41, 122–138. https://doi.org/10.1016/j.ecosys.2016.05.006.
Doan, A. T., Lin, K. L., & Doong, S. C. (2018). What drives bank efficiency? The interaction of bank income diversification and ownership. International Review of Economics and Finance, 55, 203–219. https://doi.org/10.1016/j.iref.2017.07.019.
Koutsomanoli-Filippaki, A., Margaritis, D., & Staikouras, C. (2009). Efficiency and productivity growth in the banking industry of Central and Eastern Europe. Journal of Banking and Finance, 33 (3), 557–567. https://doi.org/10.1016/j.jbankfin.2008.09.009.
Hou, X., Wang, Q., & Zhang, Q. (2014). Market structure, risk-taking, and the efficiency of Chinese commercial banks. Emerging Markets Review, 35 (2), 99–118. https://doi.org/10.1016/j.ememar.2014.06.001.
Sarpong-Kumankoma, E., Abor, J., Aboagye, A. Q. Q., & Amidu, M. (2017). Freedom, competition and bank efficiency in Sub-Saharan Africa. International Journal of Law and Management, 59 (6), 1359–1380. https://doi.org/10.1108/ijlma-11-2016-0142.
Zhu, N., Wu, Y., Wang, B., & Yu, Z. (2019). Risk preference and efficiency in Chinese banking. China Economic Review, 53, 324–341. https://doi.org/10.1016/j.chieco.2018.11.001.
Efthyvoulou, G., & Yildirim, C. (2014). Market power in CEE banking sectors and the impact of the global financial crisis. Journal of Banking and Finance, 40, 11–27. https://doi.org/10.1016/j.jbankfin.2013.11.010.
Hsiao, C., Shen, Y., & Bian, W. (2015). Evaluating the effectiveness of China’s financial reform-The efficiency of China’s domestic banks. China Economic Review, 35, 70–82. https://doi.org/10.1016/j.chieco.2015.05.006.
Khan, H. H., Kutan, A. M., Naz, I., & Qureshi, F. (2017). Efficiency, growth and market power in the banking industry: New approach to efficient structure hypothesis. North American Journal of Economics and Finance, 42, 531–545. https://doi.org/10.1016/j.najef.2017.08.004.
Fernandez, Ana I. Gonzalez, Francisco, Suarez, Nuria (2013). How do bank competition, regulation, and institutions shape the real effect of banking crises? International evidence, Journal of International Money and Finance, 33, 19-40. https://doi.org/10.1016/j.jimonfin.2012.10.002.
Abou-El-Sood, H. (2017). Corporate governance structure and capital adequacy: implications to bank risk-taking. International Journal of Managerial Finance, 13 (2), 165–185. https://doi.org/10.1108/IJMF-04-2016-0078.
Lapteacru, I. (2017). Market power and risk of Central and Eastern European banks: Does more powerful mean safer? Economic Modelling, 63, 46–59. https://doi.org/10.1016/j.econmod.2017.01.022.
Bitar, M., Pukthuanthong, K., & Walker, T. (2018). The effect of capital ratios on the risk, efficiency and profitability of banks: Evidence from OECD countries. Journal of International Financial Markets, Institutions and Money, 53, 227–262. https://doi.org/10.1016/j.intfin.2017.12.002.
Berger, A. N., Klapper, L. F., & Turk-Ariss, R. (2009). Bank competition and financial stability. Journal of Financial Services Research, 35 (2), 99–118. https://doi.org/10.1007/s10693-008-0050-7.
Houston, J. F., Lin, C., Lin, P., & Ma, Y. (2010). Creditor rights, information sharing, and bank risk-taking. Journal of Financial Economics, 96, 485–512. https://doi.org/10.1016/j.jfineco.2010.02.008.
Nguyen, T. (2013). The disciplinary effect of subordinated debt on bank risk-taking. Journal of Empirical Finance, 23, 117–141. https://doi.org/10.1016/j.jempfin.2013.05.005.
Tan, Y., & Floros, C. (2013). Risk, capital and efficiency in Chinese banking. Journal of International Financial Markets, Institutions and Money, 26, 378–393. https://doi.org/10.1016/j.intfin.2013.07.009.
Tan, Y., & Floros, C. (2018). Risk, competition and efficiency in banking: Evidence from China. Global Finance Journal, 35, 223–236. https://doi.org/10.1016/j.gfj.2017.12.001.
Browse journals by subject