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Interbank Connections, Bank Risk and Returns

  • Abdulla Ahmed Albinali and Saibal Ghosh ORCID logo EMAIL logo
Published/Copyright: February 10, 2023

Abstract

Using data on MENA country-banks, we study how interbank connections affect bank risk and returns. The findings indicate that interbank connections are determinantal to bank stability in the MENA region during periods of crisis, supportive of contagion effects. There is also a dampening impact on profitability. Over and above, the evidence for Islamic banks is supportive of contagion effects during the crisis, although their profitability is higher as well. Furthermore, macroprudential policies appear to exert a salutary impact on bank behavior, although this impact differs across the response variable: being effective for credit exposures with profits as the outcome and for funding exposure when non-performing loan ratio is the outcome variable.

JEL Classification: G21; E58; P51

Corresponding author: Saibal Ghosh, Qatar Central Bank, PO Box 1234, Doha, Qatar, E-mail:
We would like to thank without implicating two anonymous referee for the incisive comments on an earlier draft, which helped to substantially improve the analysis. The views expressed and the approach pursued in the paper are entirely the author’s personal views.

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Received: 2021-10-31
Accepted: 2023-01-15
Published Online: 2023-02-10

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