Effects of Terrorist Attacks on Banks' Performance: Evidence From WAEMU Countries

ABSTRACT In the West African Economic and Monetary Union (WAEMU) and across West Africa, terrorist attacks have risen sharply over the past decade. Beyond the tragic human toll, terrorism inflicts material, institutional, and economic damage and can impair banks' operations and productivity. This article investigates the impact of terrorism on bank performance, proxied by return on average equity (ROAE), return on average assets (ROAA), non‐performing loans (NPLs), and the Z ‐score of insolvency risk, using a panel of 92 WAEMU banks from 2005 to 2019 and a system‐GMM approach. The findings show that terrorism exerts a negative and statistically significant effect on all performance measures: a 1% rise in attacks reduces ROAE and ROAA by 4.7% and 3.9%, respectively, weakens bank solvency by 2.8%, and increases the NPL ratio by approximately 4.1 percentage points. These results underscore the need for WAEMU countries to intensify efforts to promote peace and security, and for regulators to implement reforms that explicitly safeguard financial stability and ensure sustained banking performance in the face of terrorism‐related risks in the region.