AbstractThis paper investigates the degree of market power in the Syrian banking sector over the period 2005–2016 where research on competitive conditions does not exist. The degree of competitiveness is assessed based on the revenue elasticity to input prices approach and is related to a set of market indicators. To test whether the Syrian crisis has altered the competitive conditions over the years of the sample, I divide the full sample into two subsamples, namely the pre‐crisis years (2005–2012) and the crisis years (2013–2016). The results suggest that banks in Syria earn their interest and total revenue under conditions of monopoly. I find that the trend of market structure—characterized by a monopoly—in the pre‐crisis years continues over crisis years. My findings provide robust evidence that a collusive behaviour among banks is in operation in the banking sector of Syria. The difficult penetration into/exit from the market has led to the existence of a profit‐curb mechanism for the Syrian banks, hence, an upward shift in the marginal cost curve will be associated with a reduction in revenue as a result of the optimal condition for these banks which act as monopolists.
Investigating the factors which determine bank profitability has been a hot topic for decades, however, there is still no consensus among researchers, practitioners, or policymakers regarding the set of factors that affect bank profitability due to the differences in social, economic, legal, and technical contexts across banking systems all over the world which give rise to the existence of many econometric specifications and samples design. In this paper, we survey 65 studies on bank profitability which covers the banking systems in three major blocs; the US, the EU, and the rest of the world (RoW). We followed two approaches; the first is to classify the surveyed studies into subgroups based on the used measure of profitability (ROA or ROE), sample size (small or large), and the time frame (the period) that data covers in each study (short or long). We then trace the impact of each of the factors of profitability (defined earlier) on the measure of profitability within the aforementioned subgroups across the different geographical areas. We call this approach "between blocks". The second approach was to trace the impact of each factor on ROA or ROE within each geographical area; namely the US, EU, and RoW. We call this approach the "within blocks". Factors are said to have an impact on ROA or ROE based on a set of rules we design within the paper. Based on "between blocks", we find three factors with consistent impact on ROA in all subgroups (CAP, CE, and GGDP) which are all positively related to ROA; One factor (CR) was found to have a negative impact on ROA in three subgroups. Comparing the impact of each factor on ROE across the three subgroups, we find only one factor (CE) that is positively related to ROE in three subgroups. Based on "within blocks", and within the US, factors that are found to be positively related to ROA are CAP, CE, GGDP, and INF, while CR is negatively related to ROA. On the other hand, factors that are found to be positively related to ROE are CE and NII, while CR and LIQ are negatively related to ROE. In the EU, factors that are found to be positively related to ROA are CAP, CE, and GGDP, while CR, LIQ, BSD, and INF are found to be negatively related to ROA. On the other hand, factors that are found to be positively related to ROE are CE and GGDP, while CR is the only factor with a negative impact on ROE. Finally, factors that are found to have a positive impact on ROA within RoW are CAP and CE, while CR and LIQ are negatively related to ROA. When it comes to ROE, CE and GGDP have a positive impact while LIQ is negatively related to ROE. To check for the robustness of our findings, we decided to account for the "quality" of each of the surveyed papers to assure that they are equally weighted in terms of each paper's quality. Hence, we have to consider only the papers which come from top journals, or in some cases, bad journals but the papers are of high quality. To perform this task, we build a "quality index" which rules out all the papers that are of scholarly low quality by defining some rules. As a result of applying this index, our surveyed studies were downsized from 65 to only 45 studies. Our findings confirm the results obtained before the index was applied which confirms that the inclusion of such index represents a special case of the approaches we developed in tracing the impacts of determinants of bank profitability internationally and, therefore, our results are robust. ; Using the fixed effect estimator, this paper analyzes the profitability of 11 private banks in Syria over the period from 2007:Q1 to 2018:Q4. To evaluate the impact of the Syrian crisis (civil war), we separately consider the pre-crisis period, 2007:Q1-2012:Q4, and the crisis period of 2013:Q1-2018:Q4. Our profitability determinants include bank-specific characteristics as well as industry-specific and macroeconomic factors, some of which have not been considered in previous studies. The inclusion of these additional factors as well as the separate consideration of the crisis years allow us to gain new insights into what determines the profitability of private banks in Syria. Our results clearly show that there exist large differences in profitability among our sample banks and that a significant amount of this variation can be explained by the factors included in our analyses. ; Unlike the past literature which focuses on studying the effects of bank efficiency on the bank performance (in the same period) using different methodologies to assess how differences in the efficiencies obtained across the different methods lead to different impacts, we test the impacts of bank efficiency of the Syrian banking sector in normal times on bank performance (risk & profitability) during the subsequent crisis. We extend the work of Assaf et al. (2019) by opting to use two different methodologies; Stochastic Frontier Analysis (SFA) and Free Distribution Approach (FDA) to estimate cost and profit efficiencies during normal times and assess how the different methodologies lead to different impacts of the estimated efficiencies on bank performance during crisis times assuming two scenarios for the estimation of inefficiencies; the first is a time-invariant inefficiency while the second is a time-varying inefficiency. With respect to bank risk, we find that cost efficiency during normal times was translated into increasing banks risk, under time-invariant and time-varying inefficiency. However, we find that profit efficiency has a negative impact on bank risk during the subsequent crisis under timeinvariant and time-varying inefficiency. This suggests that cost efficiency may better proxy management quality, while profit efficiency may partially reflect temporary high returns during normal times from low-risk investments that are reversed during the subsequent crisis. With respect to bank profitability, we find that cost efficiency, during normal times, was translated into helping banks to increase their profitability under the time-invariant inefficiency. However, the results were contradictory under the time-varying inefficiency. On the other hand, profit efficiency in the pre-crisis period seems to be conclusive with respect to its negative impact on profitability during the subsequent crisis. This was proven based on the results of two models under time-invariant inefficiency and one model under timevarying inefficiency suggesting that bank managers were tending to engage in high revenues-low risk activities in the period prior to the outbreak of the Syrian crisis. Findings have policy implications and imply policymakers, regulators and supervisors should consider more sophisticated means of monitoring and surveillance of banks characterized with high-cost efficiency as early as possible in order to decrease and minimize the occurrence of potential problems that might surface during future financial crises. In addition, bank managers should focus on utilizing policies and procedures that promote and foster cost efficiency, which may drive better bank performance and enhance the response of banks to possible negative shocks during any subsequent crises.
