Bank performance, capital and size: a comparative analysis in MENA and EU

The debate on optimal bank capital and size and their association with bank performance is still ongoing and high on policy makers’ agenda. This study analyzes the impact of capital and size on bank performance for 1053 banks operating in the EU and MENA regions over the period 2009–2020. The results show that capital is an important determinant of bank performance as it is highly significant in both regions; however, banks’ performance in MENA seems to be more responsive to changes in the capital ratios. Further, while bank size has a positive non-linear relationship with profitability in the EU region, it does not seem to have a significant impact in the MENA region. This study contributes to the literature by providing a strong empirical evidence that more capital is associated with higher profitability in regions characterized by different levels of development, contrary to the bankers’ belief that capital is costly. Regulators may find this conclusion to be useful and in line with their objective of boosting bank resilience and performance.