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The Nexus among Competition, Risk and Performance in Banking Sector of Saudi Arabia

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  • Nazish Iftikhar
  • Nadeem Iqbal
  • Hasan Hanif

Abstract

The determination behind this research paper is to inspect the relation among competition, risk, and financial performance in the Saudi Arabian banking sector for 2011-2019. This paper used Two steps Generalized Method of Moment (GMM) as an estimation technique. This study focused on Lerner Index and Herfindahl-Hirschman Index to gauge bank competition and used three alternative measures for risk, namely credit risk, liquidity risk, and z-score. The coefficients of the Lerner Index and Herfindahl-Hirschman Index are significant and positive with profitability which signifies that higher competition in Saudi Arabian banks led to a decrease in profitability which is explained in the Structural Conduct Performance Hypothesis. Z-score shows a significant positive relationship with profitability. Credit risk has a positive relationship with profitability reveals that risk-adjusted returns are being targeted by risk-averse shareholders trying to gain more profits to compensate for the higher credit risk. The outcome of the study provides a comprehensive framework to the Central bank and other regulatory authorities to introduce micro and macro prudential policies that are aligned to the stability of the financial system.

Suggested Citation

  • Nazish Iftikhar & Nadeem Iqbal & Hasan Hanif, 2021. "The Nexus among Competition, Risk and Performance in Banking Sector of Saudi Arabia," Journal of Economic Impact, Science Impact Publishers, vol. 3(3), pages 196-201.
    • Handle: RePEc:adx:journl:v:3:y:2021:i:3:p:196-201
    DOI: 10.52223/jei3032109
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