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Have Foreign Banks Contributed to the Spread of the Global Financial Crisis to Saudi Arabia?

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  • Mahmoud Haddad

    () (University of Tennessee-Martin, College of Business And Public Affairs)

  • Sam Hakim

Abstract

We analyze the role of domestic and foreign banks in Saudi Arabia during the latest financial crisis that has ravaged the world since 2007. The study is based on the growth rate in market share of the credit extended by each bank and investors’ perception about the risk exposure of this financial institution. We distinguish between purely domestic banks and institutions with joint ownership (local and foreign shareholders). While there is a suspicion that partly owned foreign banks are more risk exposed than their purely domestic counterparts, our findings suggest otherwise. Specifically we do not find evidence that foreign shareholders of Saudi banks, who suffered losses and liquidity problems in their home countries, cut credit in Saudi Arabia nor acted in a manner inconsistent with their domestic counterparts. As such, recommendations for a double standard in banking regulation are not supported by the evidence.

Suggested Citation

  • Mahmoud Haddad & Sam Hakim, 2010. "Have Foreign Banks Contributed to the Spread of the Global Financial Crisis to Saudi Arabia?," Working Papers 537, Economic Research Forum, revised 08 Jan 2010.
  • Handle: RePEc:erg:wpaper:537
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    References listed on IDEAS

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    1. Nada Kobeissi, 2004. "Ownership Structure and Bank Performance: Evidence from the Middle East and North Africa," Working Papers 0413, Economic Research Forum, revised 06 Mar 2004.
    2. Herrero, Alicia Garcia & Martinez Peria, Maria Soledad, 2007. "The mix of international banks' foreign claims: Determinants and implications," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1613-1631, June.
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    4. Jennifer S. Crystal & B. Gerard Dages & Linda S. Goldberg, 2002. "Has foreign bank entry led to sounder banks in Latin America?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 8(Jan).
    5. H. Evren Damar, 2007. "The Effect of the Iraq War on Foreign Bank Lending to the MENA Region," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(5), pages 20-36, October.
    6. Arturo J. Galindo & Alejandro Micco & Guillermo Ordoñez, 2002. "Financial Liberalization: Does It Pay to Join the Party?," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2002), pages 231-262, August.
    7. de Haas, Ralph & van Lelyveld, Iman, 2006. "Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1927-1952, July.
    8. Ricardo J. Caballero & Arvind Krishnamurthy, 2003. "Excessive Dollar Debt: Financial Development and Underinsurance," Journal of Finance, American Finance Association, vol. 58(2), pages 867-894, April.
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    Cited by:

    1. Michael, Bryane & Apostoloski, Nenad, 2012. "The Middle Eastern Wealth Management Industry: Boon or Bust?," MPRA Paper 52069, University Library of Munich, Germany.

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