Financial Risk and Financial Performance of Banks in Egypt

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Author
El-Faham, Karim
Date
2020Type
Thesis
Publisher
Cardiff Metropolitan University
Metadata
Show full item recordAbstract
This research focuses on the two main dimensions of bank performance;
profitability and risk using a sample of the listed banks in Egypt. The lack of this
type of research in Egypt is the main motive for this thesis, especially after years
of political and economic instability in the middle east; in addition to the major
regulatory reforms implemented by the Central Bank of Egypt through its banking
reform program in the last few years. Therefore, this research examines the most
important intra- and extra-bank profitability determinants, using data collected
from the unconsolidated quarterly financial reports of the eleven banks listed
consistently on the Egyptian Stock Exchange for the period (2005-2015), in
addition to country data collected from Euromonitor International and Trading
Economics databases. Moreover, the effects of the 2007/2008 Global Financial
Crisis and the Arab Spring are considered. This is done along with estimating a
panel vector auto-regression model under a generalized method of moments
framework to investigate the Granger causality between two main financial risk
types for banks; credit and liquidity risks. Furthermore, testing the effect of
regulatory capital on bank profitability after applying Pillar I of Basel II in Egypt
since 2013 is conducted through using additional data collected from Thompson
Reuters databases based on the consolidated statements of the sample banks
from the first quarter 2014 until the second quarter 2016. Findings of this
research confirm the dynamic nature of the estimated models indicating profit
persistence during the sample period, also the results show a general resilience
of the sample banks to the effects of the Global Financial Crisis and the Arab
Spring. Findings show that the effect of capitalization is positive when profitability
is measured in terms of assets and negative when profitability is measured in
terms of equity, as a result of the fall of leverage when increasing the equity to
total assets ratio; while regulatory capital shows a negative relationship with bank
profitability. This implies the need to be more conservative in applying further
stages of Basel regulations in Egypt. Additionally, the intra-bank determinants of
profitability show more significant effect than most of the extra-bank
determinants. Liquidity risk, operational efficiency, and financial structure show
negative relationships with bank profitability; while bank size, revenue
diversification, and interest rate affect bank profitability positively. However,
credit risk, economic growth, inflation, and money supply growth do not show
significant effect on bank profitability in the estimated models. Finally, the results
show a unidirectional Granger causality running from liquidity risk to credit risk of
the sample banks, implying the importance of past values of liquidity risk in
predicting future exposure to credit risk.
Description
PhD Thesis - School of Management
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