Arab Banking: Bank Ownership – Part II

Wafik Grais, 05 Mar 2015

Part II of this series examines bank ownership structures in the Arab world including the weight of both public and foreign bank ownership as well as interconnected ownership schemes prevalent in the Arab banking sector.  

 

Although the role of state banks has declined, their presence is still important in certain markets.  Their market shares are large in some markets, with the largest national banks often publicly owned. Today, state-owned banks may be holding a share of banking assets in the range of 35 percent. For example, in Tunisia, as of April 2012, three large state-owned and three large private domestic banks held 37 percent and 28 percent of total banking assets, respectively. The state plays a critical role directly through state-owned banks and, indirectly, through state-owned enterprises, which are important clients of all commercial banks. Poorly performing public banks are provided with recapitalization by the state, when needed, without changing their governance structure (IMF 2012). In Saudi Arabia, the dominant shareholders of the three largest banks are state entities.

 

In the wake of regional political changes, there has been an expansion of GCC banks in other Arab countries and a withdrawal of some non-regional banks. For example, Qatar National Bank has acquired National Société Générale Bank of Egypt from Société Générale, Tunisian Qatari Bank in Tunisia, and a 49 percent stake in Libya’s Bank of Commerce and Development. Similarly Kuwaiti banks have expanded abroad (IMF 2013). Burgan Bank (BUR) and National Bank of Kuwait (NBK) have acquired important foreign subsidiaries. In total, foreign subsidiaries represented more than 31 percent of NBK group’s total assets and about 44 percent of BUR group’s total assets at end-2012.

 

Foreign banks have a limited presence in Arab countries. Non-Gulf Cooperation Council (GCC) Arab countries and Bahrain appear to have a larger number of foreign banks than the average for MICs and the world, although this presence does not carry through to the share of assets held by foreign banks. Foreign ownership increased from 18 percent of total bank assets in 2001 to 20 percent in 2008 (Rocha et al. 2011a). This modest rise masks a moderate decline in the GCC countries and a more significant rise in non-GCC banking systems. In Saudi Arabia, foreign branches remain niche players with a small market share (IMF 2011). In Tunisia, six foreign-owned private banks hold a 28 percent share of banking assets (IMF 2012).

 

Interconnections of ownership across financial institutions and between financial institutions and nonfinancial groups are a feature of some banking systems in Arab countries. Interconnectedness leads to opaqueness of ownership structures and present opportunities for risk-inducing connected lending. The disclosure of ownership information is particularly poor. In a number of markets, information about bank ownership is considered confidential and is not publicly available. Most banks disclose little or no information about “beneficial” or “ultimate” shareholders.

 

For example, ownership linkages in the Kuwaiti financial system are complex, with close connections among industrial and commercial groups, banks, and sovereign and investment companies (ICs). Some large industrial and commercial groups have ownership stakes in Kuwaiti banks, and the state has direct and indirect stakes in several banks. Banks, in turn, own investment companies and provide industrial and commercial groups and ICs with credit. ICs also have ownership stakes in banks and industrial and commercial groups. Although such connections may induce risky financial relations, these appear contained. The risk arising from the direct linkages between local banks and ICs appears limited since banks have been reducing their direct exposures and building up precautionary provisions against weak ICs.

 

The following Part III of this series explores the micro-prudential regulatory frameworks that help ensure bank stability and sustainability.

 

Read Part I, Part III, Part IV, Part V, Part VI, Part VII

 

 


Wafik Grais is an International Senior Adviser specializing in Islamic finance, financial regulation, investment financing, private equity management, and corporate governance with expertise in SMEs and green growth financing. He was co-founder and chairman of Viveris Mashrek, a Cairo-based, financial advisory services company specialized in private equity investments in SMEs, licensed by Egypt's Financial Supervisory Authority. He spent 28 years in international finance notably with the World Bank in Washington DC where he held several senior positions both in operations and at corporate levels. He holds a Ph.D. in Economics.

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