The role of political patronage on risk-taking behavior of banks in Middle East and North Africa region

In the view of the growing interest in the role of political patronage in banking, several issues are highlighted with regards to performance and behavior of politically connected banks that may differ from their non-connected peers. In this article, the effect of political patronage on bank risk taking is examined by considering the ratio of loan loss reserves as measure of credit risk for a sample of 32 banks in some Middle Eastern and North African MENA countries. In general, we find that the presence of political patronage impact significantly bank risk, both directly and indirectly, consistent with our hypothesis that politically backed banks tend to exploit the moral hazard which, will cause them behave less prudently.