DETERMINANTS OF BANKING SECTOR DEVELOPMENT: EVIDENCE FROM ARAB MAGHREB COUNTRIES

This study measures the development of the banking sector in the Maghreb countries (Algeria, Morocco, and Tunisia) and highlights its determinants using the dynamic panel model GMM. It uses four indicators (efficiency, depth, stability) and a composite indicator from the PCA method for 2006-2023, covering 24 commercial banks (public and private). Key findings include: institutional quality, legal environment, and governance enhance the banking sector, while inflation and democracy hinder it. Institutional quality boosts efficiency, while trade openness, legal quality, and economic growth reduce efficiency in the Maghreb countries. The results highlight that trade openness, institutional quality, legal quality, income levels, and governance are positively correlated with financial depth, while inflation and economic growth show an inverse relationship. As for the stability index, it is positively correlated with institutional quality and income levels, but inversely correlated with banking sector trade openness and economic growth. Accordingly, the study concluded that Moroccan commercial banks have the highest banking development rate because the data shows that they accumulated substantial financial resources (private sector credit), banking stability (Z-score) and strong technical efficiency rankings and the banking sector's technical innovation, compared to Tunisian and Algerian banksface severe fluctuation in depth and stability due to increased governmental intervention.