Macroprudential policies and bank efficiency nexus: The moderator role of country governance

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Abstract

Although macroprudential policies (MAPPs) are widely implemented to safeguard financial stability (Ćehajić & Košak, 2022), their implications for bank efficiency remain insufficiently investigated, with most existing studies concentrating only on conventional banks’ (CBs) (Chen et al., 2022). This study examined the impact of MAPPs on Islamic banks (IBs) and CBs’ efficiency in countries that meet a standard where 1 per cent share of Islamic banking assets is in their total domestic banking sector assets. Using bank-level panel data from 14 countries (2006–2021) and ordinary least squares (OLS), fixed- and random-effects models, the results indicated that MAPPs reduced bank efficiency, with effects varying by bank type. In addition, the coefficient of CBs was slightly higher than that of IBs. Country governance (CG) significantly strengthened the negative effect of MAPPs on CBs’ efficiency, but not for IBs. Regression in the high-income and low-income group countries showed a similar sign to the basic regression results. Furthermore, additional robustness tests showed that MAPP is negatively related to both types of banks’ efficiency. These results are highly relevant for policymakers aiming to design macroprudential frameworks that stabilise the economy without disproportionately hindering banking efficiency.

Keywords: Macroprudential Policies, DEA, Conventional banks, Islamic Banks, Country Governance

Authors’ individual contribution: Conceptualization — J.C., F.K., B.A.A.N., L.W.T., and H.L.; Methodology — J.C.; Software — J.C. and H.L.; Validation — J.C.; Investigation — J.C.; Resources — J.C. and H.L.; Writing — Original Draft — H.L.; Writing — Review & Editing — J.C.; Visualization — J.C.; Supervision — F.K., B.A.A.N., and L.W.T.; Project Administration — J.C. and F.K.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G21, G28, G38

Received: 23.07.2025
Revised: 10.10.2025; 11.11.2025
Accepted: 17.11.2025
Published online: 19.11.2025

How to cite this paper: Chen, J., Kamarudin, F., Amin Noordin, B. A., Theng, L. W., & Luo, H. (2025). Macroprudential policies and bank efficiency nexus: The moderator role of country governance. Risk Governance and Control: Financial Markets & Institutions, 15(4), 109–121. https://doi.org/10.22495/rgcv15i4p10