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Inhaltsverzeichnis

Frontmatter

1. Introduction

Over the last 40 years Arab countries have made significant progress in laying down the foundations of modern economies and financial systems. Gulf economies have been boosted largely by oil export revenues resulting in among the highest rates of economic growth and per capita income in the world. Other Arab countries, such as those of North Africa, have experienced less rapid and more variable development although major reforms have been implemented at various stages aimed at introducing more market-based economic and financial systems. Typically, the energy-rich Gulf economies are characterized by low domestic income diversification, low inflation rates, stable exchange rate policies, high dependence on foreign labour, and a major role played by governments in the economic growth process. Those outside the Gulf have a high dependence on primary sectors and the government. The service sector throughout the Arab world tends to be modest in size compared with Western counterparts.
Philip Molyneux, Munawar Iqbal

2. An Overview of Arabian Economies

This chapter provides an overview of the main socio-economic features of Arabian countries over the last twenty years or so. The aim is to describe the nature of economic development that has taken place in the region as well highlighting the various broad financial sector developments and other reforms that have taken place. The Arabic region comprises 21 countries whose people speak the Arabic language and these countries can be classified economically into oil- and non-oil-exporting countries. Many Arabian blocs have appeared over the past years. These blocs share similar objectives; integrating and enforcing the economic and cultural ties between member countries. These blocs include the Council of Arab Economic Unity, the Arab Maghreb Union, the Gulf Cooperation Council (GCC) and the Council of Arab Mashreq countries.
Philip Molyneux, Munawar Iqbal

3. Economic Performance of Arabian Countries during the 1990s

This chapter outlines the economic performance of Arabian countries over the last decade. The economic growth of Arabian countries (as measured by real GDP) slowed over 1982–91, averaging 1.6 per cent compared to 4 per cent for other developing countries over the same period. This slowness led to low levels of investment and high levels of unemployment. This was also associated with rising levels of external indebtedness and fiscal deficits, especially for non-oil exporting countries forcing many Arabian countries to undertake macroeconomic reforms to promote economic growth.
Philip Molyneux, Munawar Iqbal

4. Banking and Financial Systems in Non-Gulf Arab Countries

This chapter outlines the main characteristics of the financial systems of non-Gulf Arab countries. The aim is to outline factors that have impacted on the performance and structure of financial institutions operating in these countries. The following presents an overview of the financial systems of Egypt, Jordan, the Maghreb countries and other Arab countries. We also examine briefly the financial reforms that have taken place in these countries. Particular attention is paid to reforms that have taken place over the last decade. The chapter examines changes in the financial structure of non-Gulf Arab countries over the last decade and covers issues relating to issues such as the relative importance of the commercial banks, changes in banking sector market concentration and credit distribution to the main economic sectors.
Philip Molyneux, Munawar Iqbal

5. Banking and Financial Systems in Gulf Cooperation Council (GCC) Countries

This chapter provides an overview of the financial systems of the Gulf Cooperation Council countries: Saudi Arabia, United Arab Emirates, Bahrain, Kuwait, Oman and Qatar. It covers the development of individual GCC countries’ banking systems and financial markets, an analysis of the performance of Gulf banks, and briefly outlines recent moves to create a GCC economic and financial union. In general these countries have experienced various financial reforms aimed at strengthening their financial systems. These have mainly included moves to deregulate as well as to improve prudential standards. Stock markets have been upgraded and they have begun to play a wider role in financing various economic sectors within their respective countries, although their importance remains limited. Commercial banks still dominate GCC financial systems and banking systems are highly concentrated. Gulf banking systems show favourable improvement in terms of their asset quality, capital adequacy and profitability during the 1990s. Such indicators reflect an enhanced role for financial intermediaries in the process of economic growth and exhibit the positive impact of economic and financial reforms undertaken in these countries. Furthermore, from earlier analysis we know that financial systems have deepened in these countries and the proportion of credit allocated to the private sector as a percentage of GDP has increased, suggesting that banks have become more efficient in allocating financial resources within the respective countries.
Philip Molyneux, Munawar Iqbal

6. Islamic Banking

The Arab world has been the cradle of Islamic banking and there are now around one hundred Islamic banks and financial institutions working in the private sector. Islamic financial principles are nowadays a fast-growing feature of all Arab economies. As such, the aim of this chapter is to highlight the history and features of Islamic banking business and analyze its development.
Philip Molyneux, Munawar Iqbal

7. Financial System Efficiency

We have already noted various features of Arab banking and financial systems and also identified that a major objective of the various financial liberalization programmes undertaken aim to promote more competitive, stable and better-performing operating environments. Inextricably linked to these objectives is the improvement in the efficiency of banks and the financial system overall. This chapter examines the main issues concerning the study of financial system efficiency. Among many functions the financial system performs, there are two that are essential for any economy: one is the administration of the payments mechanism, and the other is intermediation between ultimate savers and borrowers. However, undertaking these functions may not be sufficient for the financial system to maintain its wellbeing and performance. The experience of many financial systems that have experienced financial crises suggests an essential element in the functioning of the financial system is the extent of its efficient operation. This is crucially linked to the soundness and safety of the financial system overall.
Philip Molyneux, Munawar Iqbal

8. Efficiency in Arab Banking

This chapter investigates the efficiency features of a variety of Arab banking systems. In particular we report recent evidence on banking sector efficiency in Egypt, Jordan, the Gulf and various Maghreb countries. The empirical evidence on bank efficiency in these countries can be used to provide insights into the impact of economic and financial reforms. The first part of the chapter examines in detail the recent study by Al-Jarrah (2002) and Al-Jarrah and Molyneux (2003) who examine the cost and profit performance of a sample of banks operating in Jordan, Egypt, Saudi Arabia and Bahrain between 1992 and 2002. The second part of the chapter examines the efficiency of Gulf banks, summarizing the results from Al-Shammari (2003) and Mohamed (2003). The final part of the chapter discusses recent evidence from Bakhouche (2004) who analyzes the cost and profit efficiency of Algerian, Moroccan and Tunisian banks up to 2002. Despite the extensive literature that has examined productive efficiency, especially in the US banking system and other European markets, empirical research on financial sectors in developing countries, including Arabian countries, is limited. The chapter therefore aims to bring together studies on Arab banking systems in order to examine the impact of economic and financial reforms which have taken place in these countries over the past two decades.
Philip Molyneux, Munawar Iqbal

9. Current Developments and Prospects for Arab Banks

Since the late 1990s banks throughout the Arab world have been generating strong returns to their shareholders. This performance has resulted mainly from banks’ emphasis on improving their cost and revenue performance and also managing their risk exposures more effectively. Shareholder (or stakeholder) value has become a critical driver of bank strategy. Much greater attention is nowadays placed on the efficient allocation of capital throughout the banking firm. Risk and return features of banks’ operations are managed more effectively and this has also encouraged the trend to more performance-enhancing balance sheet and risk management practices, such as the growing use of sophisticated securitization and credit risk management techniques. Arab banks now place much more emphasis on boosting their non-margin income from off-balance sheet activities such as from trading, underwriting, private banking and asset management business. The banking industry has also been transformed by consolidation and profits strengthened by buoyant domestic economies. Banking markets have become more concentrated and at the same time more competitive as new financial and non-financial entrants make the banking business more contestable. In addition, universal banking continues to be the dominant form of bank operational model.
Philip Molyneux, Munawar Iqbal

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