Abstract

The paper examines the impact of corruption on the soundness of banking systems in middle-income countries. The findings show that corruption exacerbates the soundness of banking systems in those countries. This implies that increased corruption leads to banks more prone to taking risks and a rise in non-performing loans, rendering higher probability of crises. The results from robustness test yields consistent results. In addition, the results of the study show that the bankspecific variables as well as those related to regulations and institutional quality can also affect the health of banking systems in middle-income countries.