GCC financial markets and the quest for development

Middle East Policy

Volumn 7, Issue 2, 2000, Pages 20-39

  Jaber, Mohamed ^a  

^a NONE

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EID: 0034134782     PISSN: 10611924     EISSN: None     Source Type: Journal    
DOI: 10.1111/j.1475-4967.2000.tb00147.x     Document Type: Article

References (35)

1. Abdelali Jbili, Vincent Galbis and Amer Bisat, "Financial Systems and Reform in the Gulf Cooperation Council Countries," Financial Systems and Labor Markets in the Gulf Cooperation Council Countries, International Monetary Fund, November 1997.
2. Valuation figures for bank assets in the region should be viewed with caution. Among the issues to be considered is the value of real estate that is carried on the balance sheets of commercial banks. In many instances these numbers tend to be inflated and do not reflect the true value of the underlying assets. "A Question of Assets," Middle East, July 1998.
3. Salem Abdul Aziz Al-Sabah, "Gulf Banking in the Nineties: Challenges and Strategies," Middle East Policy, Vol. 3, No. 4, April 1995, p. 97.
4. Jbili et al., p. 4.
5. Although barriers to the entrance of foreign banks are in force in all GCC countries, many banks in the region have begun to espouse outward looking strategies. In their quest for a more global role in financial markets, many of the region's more powerful financial institutions - such as the Arab Banking Corporation, the Gulf International Bank and the National Bank of Kuwait - have been pursuing an outward-looking strategy through foreign branching and strategic alliances with foreign institutions. Josh Martin, "A Brave New World for Arab Banks," Middle East, July 1998.
6. th GCC Summit," Middle East Policy, June 1998.
7. Please refer to Mark Selway, "Gulf Takes a Fall," The Banker, September 1998.
8. Al-Sabah, p. 97.
9. Jbili et al., p. 7.
10. It is important to note that the capital-to-asset ratios used here are not risk-based. However one could safely assume that the risk-based capital-to-asset ratios would be even higher than the simple ratios used here due to the following factors: (i) these ratios do not take into consideration the banks' tier-two capital, (ii) the value of assets in the denominator is not risk-weighted, and (iii) the volume of off-balance-sheet activities of GCC banks is relatively small.
11. Khaled M. Al-Fayez, "International Developments and their Impact on Gulf Banks," Middle East Policy, Vol. 3, No. 4, April 1995, p. 106.
12. For further elaboration on this topic, please refer to Joseph E. Stiglitz, Jaime Jaramillo-Vallejo and Yung Chal Park, "The Role of the State in Financial Markets," World Bank Research Observer, Annual conference on development economics supplement, 1993.
13. For further elaboration on this issue, please refer to Ibrahim F. I. Shihata, "Some Recent Trends in Banking Law and their Relevance to the GCC States," The World Bank, November 1996.
14. It is important to note that a number of these new developments have found their way into the regulatory framework of the GCC countries through detailed regulations and instructions issued by the banking industry's supervisory bodies. Moreover, due to the fact that banks in the GCC countries are generally required to register as joint-stock companies, they have also been affected by a number of changes to commercial laws and codes that have sometimes included clauses that specifically targeted the operations of the banking industry. Ibid.
15. Ibid., p. 26.
16. A related issue to that of financial institution transparency is that of customer "confidentiality": the "non-disclosure of customers' banking, financial or economic information either by banks themselves, through their systems or staff, or by those who receive such information by virtue of their profession" (Al-Sabah, p. 98). Although its advocates have consistently maintained that customer confidentiality is necessary for the creation of a stable banking environment in the region, the growing international campaign against money laundering has been firmly pitted against it. As the international operations of GCC banks grow over time, this thorny issue is bound to gather more attention and will surely require an extensive review by the GCC's banking supervisory agencies.
17. Shihata.
18. Although banking laws in the GCC countries are restrictive in terms of banks pursuing non-traditional banking activities, some of these restrictions have been partially relaxed through the introduction of new rules and regulations by supervisory agencies. Among the GCC countries, UAE laws could be classified as being the most restrictive in terms of curtailing any form of universal banking. At the other end, the banking laws in Oman are unique among GCC nations in that they "explicitly" authorize banks to deal with a large variety of securities (Ibid.).
19. Ibid.
20. Ibid.
21. Ibid.
22. For further elaboration on this issue, please refer to Jbili et al., p. 13 and Luca Errico, "Islamic Banking: Issues in Prudential Regulations and Supervision," International Monetary Fund, Working Paper No. 98/30, 1998.
23. Jean-François Seznec, "The Gulf Capital Markets at a Crossroads," The Columbia Journal of World Business, Fall 1995.
24. Henry Azzam, "Preparing for a Global Future," The Banker, November 1997.
25. Edmund O'Sullivan, "Stock Markets Special Report," MEED, February 13, 1998.
26. Ibid.
27. Ibid.
28. In June 1997, the Saudi Arabia Investment Fund (SAIF) - a closed-end country fund - was launched on the London Stock Exchange. It successfully raised $250 million from international and domestic investors. Ali J. Baruni, "The Saudi Arabian Stock Market," Arab Bankers Association of North America, Vol. 15, No. 3, September 1998.
29. It should be noted that the over-protectionist role of regulators in the GCC countries has been fueled to a large extent by the 1982 stock market crash in Kuwait. As a parallel market, Souk-Al-Manakh as it was called, was hit by a huge speculative bubble that burst leaving investors bankrupt and banks debt-ridden. The market collapse left more than $90 billion of post-dated checks outstanding. To this day, negotiations on the proper compensations and write-offs are still ongoing between creditors, debtors and the Kuwaiti government - which in fact rescued local banks by exchanging their outstanding debt for government bonds (Seznec).
30. Anthony.
31. In May 1997, Kuwait and Bahrain entered into a cross-trading agreement allowing citizens of either country to trade in shares listed on either stock exchange through their local brokers (O'Sullivan).
32. Ross Levine, "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature?, Vol. 35, June 1997.
33. The theoretical analysis in the following sections relies extensively on Levine's analysis of the issue (Ibid.).
34. Ibid., p. 699-700.
35. Seznec.