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Financial and Economic Determinants of Banks Financial Distress in MENA Region

Author

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  • Abdelmoneim Bahyeldin Mohamed Metwally

    (Department of Accounting, College of Business Administration, King Faisal University, Al-Ahsa 31982, Saudi Arabia)

  • Mai M. Yasser

    (Economics Department, Faculty of Management Sciences, October University for Modern Sciences and Arts, 6th of October City 12451, Egypt)

  • Eman Adel Ahmed

    (Accounting Department, Faculty of Management Sciences, October University for Modern Sciences and Arts, 6th of October City 12451, Egypt)

  • Mohamed Ali Shabeeb Ali

    (Department of Accounting, College of Business Administration, King Faisal University, Al-Ahsa 31982, Saudi Arabia)

Abstract

This study investigates the influences of financial performance and economic determinants (inflation rate and economic growth) on financial distress (FD) in the MENA region in the context of the contagion effect theory and Minsky’s financial instability theory. This paper examines the determinants of financial distress in the MENA region from 2002 until 2020 using pooled OLS, fixed effect, and GMM panel estimation models; then the results are used to estimate the effect over the long run. The results show that the things that cause financial distress are changing a lot between countries in the MENA region. This shows how important it is to separate the effects of economic and financial factors. The results show the significance of economic growth, ROA, ROE, inflation, and stock market profitability using fixed effects. The results changed when we used GMM, concluding that economic growth, ROA, ROE, and stock market profitability were significant, while inflation was not significant. Therefore, there is a significant and negative relationship between financial distress and economic growth in GCC-MENA as well as other MENA countries. Our results can be of importance to investors and regulators. The introduction of a more stable political environment and engagement in international economic and financial markets will decrease the negative impacts of financial distress and boost economic growth and its sustainability in the MENA region.

Suggested Citation

  • Abdelmoneim Bahyeldin Mohamed Metwally & Mai M. Yasser & Eman Adel Ahmed & Mohamed Ali Shabeeb Ali, 2025. "Financial and Economic Determinants of Banks Financial Distress in MENA Region," Economies, MDPI, vol. 13(2), pages 1-24, February.
    • Handle: RePEc:gam:jecomi:v:13:y:2025:i:2:p:56-:d:1594953
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    References listed on IDEAS

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    1. Elsayed, Ahmed H. & Yarovaya, Larisa, 2019. "Financial stress dynamics in the MENA region: Evidence from the Arab Spring," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 62(C), pages 20-34.
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    3. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    4. Cevik, Emrah Ismail & Dibooglu, Sel & Kutan, Ali M., 2013. "Measuring financial stress in transition economies," Journal of Financial Stability, Elsevier, vol. 9(4), pages 597-611.
    5. Xingqiang Du & Shaojuan Lai, 2018. "Financial Distress, Investment Opportunity, and the Contagion Effect of Low Audit Quality: Evidence from China," Journal of Business Ethics, Springer, vol. 147(3), pages 565-593, February.
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