Bank Ownership.In comparison to other EMDEs, MENA countries on average implement stricter ownership laws. For example, while in other EMDEs the average percentage of a bank’s equity that can be owned by a single owner is 52 percent, in MENA this average is at 24 percent.
Regulatory Regime.While 64 percent of the respondents from the MENA region reported using Basel II as their regulatory capital adequacy regime, 39 percent of other EMDEs did so as well. However, it is not immediately clear if the adoption of Basel II will benefit the MENA countries or not because as suggested in GFDR 2013, enforceable and simpler regulatory frameworks that are within the enforcing capacity of the regulatory body may achieve better outcomes than a more complex regulatory framework that is unenforceable and beyond the capacity of regulators.
Disclosure of Information. When compared to other EMDEs, MENA countries in the BRSS 2011 have more stringent disclosure requirements in place. While 100 and 92 percent of MENA countries require banks to publicly disclose off-balance sheet items and risk management framework, these values stand at 70 and 64 percent for other EMDEs. This is somewhat surprising, as it goes against the common notion that MENA financial systems are relatively more opaque.
Supervisory Power. On average, the central banks in MENA exhibit weaker supervisory powers. Only 69 and 79 percent of MENA countries reported having the power of suspending or removing either a bank director or a manager respectively, while these figures stand at 95 and 93 percent for other EMDEs.
Capital. Although none of the MENA countries in the BRSS 2011-12 allow for the initial disbursement or subsequent injections of capital to be done with assets other than cash or government securities, 25 percent of other EMDEs allow the practice.
Foreign Entry and Bank Application Denial Rates. 15 percent of MENA jurisdictions prohibit the entry of foreign entities through acquisitions and 23 percent prohibit it through subsidiaries, while these figures stand at two percents for other EMDEs. Foreign banks are not the only entities that are denied banking licenses in MENA. The data shows that in the five years leading to 2010, 29 percent of the 42 domestic banking license applications in MENA were denied while nine applications from foreign entities faced an average denial rate of 22 percent in the same period.
Conclusion. World Bank’s Banking Regulation and Supervisory Survey provides some initial evidence that in the tradeoff between financial stability and financial growth associated with higher levels of risk, the banking regulatory framework in MENA seems to have chosen the side of stability. The z-scores reported in the Global Financial Development Database (GFDD) also seem to support the findings in BRSS 2011-12, as on average, financial institutions in MENA seem to have the highest z-score among all regions. This is perhaps the main reason as to why the banking and financial institutions in MENA have for the most part managed to escape the recent global financial crisis. However, this strategy has not been without costs, as it has made credit scarcer for the private sector in MENA, especially for the small and medium enterprises (SMEs). Please stay tuned for more blogs on MENA’s financial and banking sector.
(Click to Enlarge)
The Arab MENA countries that participated in BRSS 2011-12 were Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Morocco, Oman, Palestinian Authority, Qatar, Syria, Tunisia, United Arab Emirates, and Yemen, all of which are considered as either emerging or developing economies. The definition for emerging market/developing economies (EMDEs) follows IMF’s September 2011 World Economic Outlook.
Source: Author’s calculation based on BRSS 2011. See here.