Governments, Elections and Bank Behaviour in MENA

In many countries, banks act like the nervous system of the economy. If they misbehave, the whole country can feel pain. Researchers wanted to see what makes banks act well or poorly, especially in the Middle East and North Africa. They looked at ten commercial banks from 2015 to 2020, all of which are partly owned by governments. Using a statistical tool called the Generalized Method of Moments, they measured how much the state owns each bank and then checked how these banks managed their earnings. The key tool for this check was loan loss provisions, a way banks set aside money to cover bad loans. A higher level of these provisions can signal that the bank is smoothing its income – making earnings look steadier than they really are.The study also added elections into the mix. They compared bank behaviour in years when national elections happened to other years. The data showed that banks with bigger government stakes tended to smooth income more. Elections had a clear effect too. In years with political contests, banks changed their accounting practices more than in quiet years. Overall, the findings suggest that both state ownership and political timing influence how banks report earnings. This matters because smooth income can mask real financial health, affecting policy decisions and public trust.