Understanding and monitoring the impact of a declined economy on the health of the banking industry is a particularly important challenge for bank regulators and policy makers. In fact, economic activities experience over long period of time recurring fluctuations occurring at irregular intervals because of disturbances and imperfections in the economy of one sort or another. Those fluctuations last for varying lengths of time and compose what economic community commonly calls the “Business cycle”. In this paper, we are interested to assess empirically for the main bank specific factors behind the profitability of MENA banks taking into consideration business cycle fluctuations. Specifically we attempt to know how business cycle fluctuations can affect bank profitability. Results showed that the increase of banks’ capitalization and liquidity ratios enhanced profitability while the latter decline with bad asset quality and more costs. Capitalization and asset quality should be considered attentively during recessions since their implications are more pronounced during those periods. During prosperous times, banks should reinforce their liquidity position to get additional profits.
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