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Did Financial Liberalization Lead to Bank Fragility? Evidence from Tunisia

Author

Listed:
  • Helmi Hamdi
  • Abdelaziz Hakimi
  • Mouldi Djelassi

Abstract

The aim of this study is to investigate the performance of the Tunisian banking sector following the liberalization of its financial sector. To this end, we collected annual frequency data from nine banks for the period 1980-2009. By using Seemingly Unrelated Regression (SUR), our estimations show that financial liberalization negatively affected the profitability of Tunisian banks and increased the degree of credit risk. However, empirical results reveal that financial liberalization significantly increased the liquidity of banks due to liberalization of deposit interest rates.

Suggested Citation

  • Helmi Hamdi & Abdelaziz Hakimi & Mouldi Djelassi, 2013. "Did Financial Liberalization Lead to Bank Fragility? Evidence from Tunisia," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(5), pages 77-88.
    • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:5:p:77-88
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    References listed on IDEAS

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    1. Loayza, Norman V. & Ranciere, Romain, 2006. "Financial Development, Financial Fragility, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1051-1076, June.
    2. Hakimi Abdelaziz & Djelassi Mouldi & Hamdi Helmi, 2011. "Financial Liberalization and Banking Profitability: A Panel Data Analysis for Tunisian Banks," International Journal of Economics and Financial Issues, Econjournals, vol. 1(2), pages 19-32, June.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    4. William C. Gruben & Jahyeong Koo & Robert R. Moore, 1999. "When does financial liberalization make banks risky? : an empirical examination of Argentina, Canada and Mexico," Center for Latin America Working Papers 0399, Federal Reserve Bank of Dallas.
    5. Abiad, Abdul & Oomes, Nienke & Ueda, Kenichi, 2008. "The quality effect: Does financial liberalization improve the allocation of capital?," Journal of Development Economics, Elsevier, vol. 87(2), pages 270-282, October.
    6. Anusha Chari & Peter Blair Henry, 2002. "Capital Account Liberalization: Allocative Efficiency or Animal Spirits?," NBER Working Papers 8908, National Bureau of Economic Research, Inc.
    7. Vicente Galbis, 1993. "High Real Interest Rates Under Financial Liberalization: Is there a Problem?," IMF Working Papers 1993/007, International Monetary Fund.
    8. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
    9. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    10. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
    11. William C. Gruben & Jahyeong Koo & Robert R. Moore, 2003. "Financial liberalization, market discipline and bank risk," Center for Latin America Working Papers 0303, Federal Reserve Bank of Dallas.
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    Cited by:

    1. Helmi Hamdi, 2015. "Financial Reform and Economic Development," Economies, MDPI, vol. 3(4), pages 1-2, December.
    2. Rui Wang & Hang (Robin) Luo, 2019. "Does Financial Liberalization Affect Bank Risk-Taking in China?," SAGE Open, , vol. 9(4), pages 21582440198, November.
    3. Hakimi, Abdelaziz & Hamdi, Helmi, 2013. "Credit Information, Guarantees and Non-Performing Loans," MPRA Paper 55750, University Library of Munich, Germany, revised 2014.
    4. Hamdi, Helmi & Jlassi, Nabila Boukef, 2014. "Financial liberalization, disaggregated capital flows and banking crisis: Evidence from developing countries," Economic Modelling, Elsevier, vol. 41(C), pages 124-132.
    5. Rachdi, Houssem & Hakimi, Abdelaziz & Hamdi, Helmi, 2018. "Liberalization, crisis and growth in MENA region: Do institutions matter?," Journal of Policy Modeling, Elsevier, vol. 40(4), pages 810-826.
    6. RACHDI, Houssem & Hakimi, Abdelaziz & Hamdi, Helmi, 2015. "Financial Liberalization, Banking Crisis and Economic Growth in MENA Region: Do Institutions Matter?," MPRA Paper 64562, University Library of Munich, Germany.
    7. Hakimi, Abdelaziz & Hamdi, Helmi & Djlassi, Mouldi, 2013. "Testing the concentration-performance relationship in the Tunisian banking sector," MPRA Paper 55927, University Library of Munich, Germany, revised 2013.

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    More about this item

    Keywords

    Financial Liberalization; Bank Frugality; Tunisian Banks; SUR Regression;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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