Basel Capital Requirements and Credit Crunch in the MENA Region

July 3, 2013

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Sami Ben Naceur, and Magda E. Kandil Basel Capital Requirements and Credit Crunch in the MENA Region, (USA: International Monetary Fund, 2013) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The 1988 Basel I Accord set the common requirements of bank capital to promote the soundness and stability of the international banking system. The agreement required banks to hold capital in proportion to their perceived credit risks, and this requirement may have caused a “credit crunch,” a significant reduction in the supply of credit. We investigate the direct link between the implementation of the Basel I Accord and lending activities, using a data set spanning annual observations covering 1989–2004 for banks in Egypt, Jordan, Lebanon, Morocco, and Tunisia. The results provide clear support for a significant increase in credit growth following the implementation of capital regulations, in general. Despite higher capital adequacy ratios, banks expanded credit and asset growth. Credit growth appears to be driven by demand fluctuations attributed to real growth, cost of borrowing, and exchange rate risk. Overall, the effects of macroeconomic variables, in contrast to capital adequacy, appear to be more dominant in determining credit growth, regardless of the capital adequacy ratio, and regardless of variation across banks by nationality, ownership, and listing.

Subject: Bank credit, Banking, Basel Core Principles, Capital adequacy requirements, Commercial banks, Credit, Financial institutions, Financial regulation and supervision, Loans, Money

Keywords: Bank capital, Bank capital requirement, Bank portfolio, Bank regulator, Bank shrinkage, Bank-borrower relationship, Banking sector, Banks' holding, Basel Core Principles, Basel I Accord, Capital adequacy requirements, Capital base, Capital regulation, Capital requirement, Commercial banks, Credit, Credit crunch, East Africa, Government securities, Interest rate, Investment strategy, Lending behaviour, Loan-asset ratio, Loans, Middle East, North Africa, Panel data models, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/160
Stock No:

WPIEA2013160
ISBN:

9781475586275
ISSN:

1018-5941

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