From Market Power to Financial Resilience: The Role of Institutional Governance in the MENA Region

We analyze the complex relationship between market competition, institutional governance, and financial resilience across sample of 110 banks from the MENA region over the period 2007–2024 and accounting for the role of Islamic banks, the moderating role of ownership structure, degree of concentration, and structural shocks using the Panel corrected standard error (PCSE) and generalized method of moments (GMM) methodologies. The results provide strong support for the competition-fragility hypothesis. High market power decreases financial resilience and increases non-performing loans, and market concentration increases resilience through a more efficient monitoring system, economies of scale, and relationship lending. Whereas Institutional governance strengthens resilience and reduces risk, it simultaneously increases competitive pressure, consistent with the market competition-discipline-risk channel. Ownership structure and concentration further influence the stability-risk relationship, with foreign and more concentrated banks being more resilient than state-owned banks and more concentrated than domestic-foreign entities. Structural shocks amplified the destabilizing effect of market competition but were mitigated by increases in concentration. Our findings highlight the interactions of market structure, governance, ownership, and shocks and provide policy implications to further stabilize banking systems in developing, politically complex contexts.