COMPETITION, RISK, AND PROFITABILITY IN BANKING: A STUDY OF OIL EXPORTING VS. NON-EXPORTING COUNTRIES

Abstract

This study investigates the association of competition, risk, and financial performance in the banking industry of Oil Exporting Countries (OEC) and Non-Exporting Oil countries (NEOC) from 2011-2019 using the balanced panel data from 2011 to 2019. The two-step system generalized method of moment (GMM) is used to estimate the results in this paper. The primary focus of this study is to assess competition among banks with the Lerner Index and Herfindahl-Hirschman Index along with credit risk, liquidity risk, and insolvency risk which are the main measures of risk in the banking sector. Competition, credit risk, and liquidity risk negatively influence the profitability of banks in OECs whereas they have a significant positive relation with profitability in NEOCs’ banks. Z-score and profitability show a significant positive relation in the banking sectors of OECs and NEOCs. The study's conclusion offers a thorough framework that the central bank and other regulatory bodies can use to implement macroprudential and macroprudential measures that support the stability of the financial system.