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Credit risk and Tunisian bank stability in the Covid-19 wave

Author

Listed:
  • Emna Trabelsi

    (Social and Economic Policy Analysis Laboratory, Higher Institute of Management of Tunis, University of Tunis, Tunisia)

  • Malek Ben Mansour

    (Faculty of Economic and Management Sciences of Sousse, University of Sousse, Tunisia)

Abstract
Banks are at the core of economic functioning in various countries and are the cause of their development in various fields. In a changing environment, they must deal with certain risks and maintain financial stability as the ultimate objective. The primary objective of this study is to examine the correlation between credit risk and bank stability within the Tunisian banking sector, with a specific focus on understanding the moderating impact of the COVID-19 pandemic. To achieve this, we employ several econometric techniques, including panel unit root and cointegration tests, panel Vector Error Correction Model (VECM), Fully Modified Ordinary Least Squares (FMOLS), and Dynamic Ordinary Least Squares (DOLS). Our empirical analysis relies on a panel dataset that encompasses a comprehensive sample of 8 Tunisian banks over 2000-2020. The results of our analysis unveil a significant negative relationship between credit risk and bank stability, indicating that higher levels of credit risk exert a detrimental effect on the overall stability of Tunisian banks. Furthermore, our study highlights that this adverse impact is further exacerbated during the COVID-19 pandemic, suggesting that the pandemic acts as a moderator. The findings of this study hold substantial implications for policymakers, regulators, and bank managers in Tunisia. They emphasize the critical importance of implementing robust risk management practices to mitigate credit risk and bolster bank stability. Additionally, the research underscores the need to consider the unique challenges introduced by external shocks, such as the COVID-19 pandemic, when assessing the overall stability of the banking system.

Suggested Citation

  • Emna Trabelsi & Malek Ben Mansour, 2024. "Credit risk and Tunisian bank stability in the Covid-19 wave," Journal of Economic Analysis, Anser Press, vol. 3(2), pages 1-22, June.
    • Handle: RePEc:bba:j00001:v:3:y:2024:i:2:p:1-22:d:173
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    References listed on IDEAS

    as
    1. K. Ben Khediri & H. Ben-Khedhiri, 2011. "Determinants of bank net interest margin in Tunisia: a panel data model," Applied Economics Letters, Taylor & Francis Journals, vol. 18(13), pages 1267-1271.
    2. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    3. Shasnil Avinesh Chand & Ronald Ravinesh Kumar & Peter Josef Stauvermann, 2021. "Determinants of bank stability in a small island economy: a study of Fiji," Accounting Research Journal, Emerald Group Publishing Limited, vol. 34(1), pages 22-42, January.
    4. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
    5. Khemais Zaghdoudi, 2019. "The Effects of Risks on the Stability of Tunisian Conventional Banks," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(3), pages 389-401.
    6. Hakimi Abdelaziz & Boussaada Rim & Hamdi Helmi, 2022. "The Interactional Relationships Between Credit Risk, Liquidity Risk and Bank Profitability in MENA Region," Global Business Review, International Management Institute, vol. 23(3), pages 561-583, June.
    7. Khemais Zaghdoudi, 2019. "The Effects of Risks on the Stability of Tunisian Conventional Banks," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(3), pages 389-401, March.
    Full references (including those not matched with items on IDEAS)

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