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Bank ownership and performance in the Middle East and North Africa region

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  • Farazi, Subika
  • Feyen, Erik
  • Rocha, Roberto
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    Abstract

    Although both domestic and foreign private banks have gained ground in MENA in recent years, state banks continue to play an important role in many countries. Using a MENA bank-level panel dataset for the period 2001-08, the paper contributes to the empirical literature by documenting recent ownership trends and assessing the role of ownership and bank performance in MENA while accounting for key bank characteristics such as size and balance sheet composition. The paper analyzes headline performance indicators as well as their key drivers and finds that state banks exhibit significantly weaker performance, despite their larger size. This result is mainly driven by a larger holding of government securities, higher costs due to larger staffing numbers, and larger loan loss provisions reflecting weaker asset quality. The results reflect both operational inefficiencies and policy mandates. The paper also provides a detailed performance analysis of foreign and listed banks. Foreign banks are fairly new in MENA, yet perform on par with domestic banks despite their smaller size and higher investment costs. Listed banks exhibit superior performance driven by higher interest margins even in the face of higher costs associated with listing. Taken together, the results do not reject the development role for state banks, but do show that their intervention comes at a cost. As such, there is scope to reduce the share of state banks in some countries and to clarify the mandates, improve the governance, and strengthen the operational efficiency of most state banks in MENA.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5620.

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    Date of creation: 01 Apr 2011
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    Handle: RePEc:wbk:wbrwps:5620

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    Keywords: Banks&Banking Reform; Access to Finance; Debt Markets; Corporate Law; Bankruptcy and Resolution of Financial Distress;

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    References

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    1. Tobias Körner & Isabel Schnabel, 2010. "Public Ownership of Banks and Economic Growth – The Role of Heterogeneity," Working Paper Series of the Max Planck Institute for Research on Collective Goods, Max Planck Institute for Research on Collective Goods 2010_41, Max Planck Institute for Research on Collective Goods.
    2. Rima Turk Ariss, 2008. "Financial liberalization and bank efficiency: evidence from post-war Lebanon," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(11), pages 931-946.
    3. Eduardo Levy-Yeyat & Alejandro Micco & Ugo Panizza, 2007. "A reappraisal of State-Owned Banks," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
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    Cited by:
    1. Adolfo Barajas & Ralph Chami & Reza Yousefi, 2013. "The Finance and Growth Nexus Re-Examined," IMF Working Papers 13/130, International Monetary Fund.

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