Spillover Effect of Existence Government Spending Toward Banking Performance
This study empirically attempts to investigate the impact of government intervention into the economy on the performance of banking industry in Kuwait. The yearly data set covers seven commercial banks in Kuwait during the period (1993–2017). The estimated model is tested using techniques of pooled OLS, fixed effect, and random effect. Bank specific factors, macroeconomic indicators, and the government intervention indicator determining banking profitability are recognized and examined with panel data approach. According to the appropriate fixed effect approach, findings show that government spending into the Kuwaiti economy is approved to deteriorate the performance of banking system. This suggests that the massive government spending tends to crowed out the role of the private sector in the economy through limiting credit channel to the banking industry. In further analysis for banking performance, using time fixed effects approach, the effect of financial crisis on the banking performance is only pronounced during the years of 2008 and 2009, whereas the effect was progressively vanished after the year 2009 which ensures the soundness of the banking industry in Kuwait to prevent global financial panics.
Keywords - Banking Sector, Bank Performance, Government Spending, Kuwait, Panel Data JEL Classification: G21,L2, L25, C23