The impact of political risk on banks’ profitability in unstable environments: Evidence from FCC countries
This paper examines the impact of the political risk on the banking sector in the FCC region.
The financial institutions in the FCC region were faced with political risk and economic uncertainty (Peters, Raad, & Sinkey, 2004; Valensisi, & Missaglia, 2010). The uncertainty in the political environment in the FCC region has made it difficult for the banking institutions to manage risks, as these risks adversely affect the banks’ profitability (Abdelkarim, 2007). The Fertile Crescent Countries (FCC) are located in the heart of the Middle East. They involve Lebanon, Syria, Iraq, Palestine, and Jordan (Qtaishat, 2013). It has been observed that the banks’ profitability in this area has been on a declining trend since the global financial crisis 2008/2009 (BankScope). The volatility and decline in banks’ profitability are important issues that need more concentration and investigations due to the profitability shocks (Bongini, P., Cucinelli, D., Di Battista, M. L., & Nieri, L. 2018).
Salem Mohammad Abdelaziz Salem,
Faculty of Business & Economics, Palestine Technical University Kadoorie, Palestine.
Email: salem.salem@ptuk.edu.ps
The banking sector in the Fertile Crescent Countries (FCC)
the profitability of the banks is considered the basic element of the stability of the entire financial system, the economic growth, and the development (Mirzaei et al., 2013; Mokni, & Rachdi, 2014; Bongini et al., 2018). There are a lot of studies that examined the effect of different factors on banks’ profitability, but there are very rare studies that investigate the impact of political risk on banks’ profitability in unstable economies such as FCC countries. The banking sector in FCC countries was influenced by the unstable situation and was affected by different internal and external factors such as political risk and environmental uncertainty (Peters et al., 2004; Almazari, 2014; Salem & Rahman, 2016).
The empirical results of this study and after controlling for different bank-specific and macroeconomic variables show that the political risk is affecting negatively the banks’ profitability in the FCC countries. The negative relationship between the political risk and the banks’ profitability is caused by the unstable circumstances in the region.
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