The impact of bank specific and macroeconomic factors on banks’ risk and return: A comparative study between Egypt and Saudi Arabia

This paper investigates the impact of bank-specific and macroeconomic factors on banks’ risk and return in Egypt and Saudi Arabia, the purpose of this paper is to conclude the risk and return sensitivity to macroeconomic factors and bank-specific in different economic environment; utilizing a panel dataset of largest 20 banks in Egypt and Saudi Arabia over the period 2008–2024. This research methodology employing System Generalized Method of Moments (GMM) to address endogeneity and dynamic relationships, the research measured bank-specific factor by capital adequacy, bank size, loan-to-deposit ratio, and operational efficiency; as well as external macroeconomic factors by Gross Domestic Product (GDP) growth, Inflation, and Interbank rates. The credit risk measured by non-performing loans (NPLs) and its provisioning, while return measured by return on assets (ROA), return on equity (ROE), and net interest margin (NIM). The findings highlight that there is significant impact of bank-specific and macroeconomic factor on risk for Egypt and Saudi Arabia except capital adequacy ratio and gross domestic product (GDP) for Egypt in addition, interbank rate and size were insignificant for Saudi Arabia banks. Moreover, the research pointed out significant impact of bank’s capital adequacy ratio, interbank rate, loan to deposit ratio and operation efficiency on bank return in Egypt; in addition, the return influenced significantly by capital adequacy ratio and operation efficiency only in Saudi Arabia while, macroeconomic factors have insignificant impact on Bank’s return in Saudi Arabia. Egyptian banks risk and return show sensitivity to bank-specific and macroeconomic factors, while Saudi banks exhibit greater stability and resilience against macroeconomic shocks and less sensitivity to internal factor.