Assessing the Direct and Moderating Effect of COVID-19 on the Performance of the Banking Sector in the MENA Region

Abstract

This article discusses the impact of the COVID-19 pandemic on the financial performance, credit risk and capital adequacy of the banks in the Middle East and North Africa (MENA) region, with the determinants of the banks’ financial performance before and during the pandemic investigated. The data were collected from the Orbis Bank Focus database and banks’ annual financial reports, with descriptive statistics, t-tests and multiple regressions employed to analyse the data. The results revealed that the pandemic negatively and significantly affected the financial performance of the banks, increasing the credit risk, but that it had no significant impact on capital adequacy. Furthermore, the findings indicated that the managerial efficiency, the bank’s size and the gross domestic product had a significant positive impact on the bank’s financial performance in both periods, while in contrast, the credit risk had a negative and significant impact on the banks’ financial performance. Finally, the liquidity risk, capital adequacy, inflation and oil prices had no significant impact on the banks’ financial performance. The findings of this study are important for the banks in the MENA countries given the uncertain future with the recurrent emergence of global crises. Overall, it is recommended that the banks implement strategies to control the credit risks and thus maintain their profitability during such crises.