Title: Competition, stability and the efficiency channel in the Tunisian banking system

Authors: Abderazak Bakhouche

Addresses: Business Faculty, Higher Colleges of Technology (HCT), Dubai Men's Campus (DMC), Academic City Road, P.O. Box 15825, Dubai, UAE

Abstract: Tunisia has expanded foreign capital entry and introduced Basel-based reforms to bolster bank efficiency, competition and stability. Although notable progress has been made, the increase in non-performing loans (NPLs) and susceptibility to adverse economic conditions remain significant threats to bank stability. This study examines the competition-stability nexus in the Tunisian banking sector from 2005 to 2020 and establishes whether cost efficiency plays a role in this relationship. The results reveal that competition reduces stability, supporting the competition-fragility thesis with an insignificant efficiency channel. Fragility heightens as banks become larger, while liquidity and diversification have a neutral effect. Inflation, GDP growth and the rule of law influence bank stability. Interestingly, the stability of government-owned, foreign-owned, and private banks does not significantly differ. This suggests that non-government ownership may pursue objectives other than enhancing stability. Consequently, there is a case for reviewing reform programs and redefining their objectives and procedures.

Keywords: bank competition; cost efficiency; stability; Lerner index; market power; Tunisia; Covid-19; Arab spring.

DOI: 10.1504/IJAAPE.2024.135553

International Journal of Accounting, Auditing and Performance Evaluation, 2024 Vol.20 No.1/2, pp.121 - 154

Received: 06 Apr 2022
Received in revised form: 23 Sep 2022
Accepted: 29 Nov 2022
Published online: 18 Dec 2023 *

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