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

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  • Abderazak Bakhouche

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.

Suggested Citation

  • Abderazak Bakhouche, 2024. "Competition, stability and the efficiency channel in the Tunisian banking system," International Journal of Accounting, Auditing and Performance Evaluation, Inderscience Enterprises Ltd, vol. 20(1/2), pages 121-154.
    • Handle: RePEc:ids:ijaape:v:20:y:2024:i:1/2:p:121-154
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