رفتار رقابتی در خاورمیانه و سیستم های بانکداری شمال آفریقا

This paper investigates the degree of market power in Middle East and North Africa (MENA) banking systems where research on competitive conditions is scant. The banking sectors of MENA countries are highly concentrated and they present unique characteristics in terms of ownership, structure and growth potential. The degree of competitiveness is assessed based on the revenue elasticity to input prices approach, and is related to a set of market and contestability indicators. The results show that, except for countries in North Africa where monopolistic conditions are found, the prevailing market structure in MENA banking is mostly monopolistically competitive. In line with the finding on other emerging and developed countries, assuring greater market contestability by allowing more foreign bank participation and reducing activity restrictions on banks is most important to guaranteeing competitiveness in the highly concentrated banking systems of the MENA region.

Recent advances in information technology, financial innovations, globalization and deregulation have reduced margins in traditional banking activities worldwide. This set off a wave of mergers between banks and other financial institutions causing drastic changes in the structure of the banking industry. In turn, greater consolidation raises concerns regarding issues of competition in the local retail markets. The policy implications of such concerns are particularly relevant because regulators have traditionally used banking market structure as a policy variable to recommend measures aimed at fueling competition, promoting financial liberalization and removing barriers to entry.1 The Middle East and North Africa (MENA) region is strategically located between Asian economies and the Western world. Except for Turkey, MENA countries were colonized by the French or the British until mid of the past century. Major institutions including financial intermediaries were established following the Western style, but they present some interesting features that make them a challenging fieldwork. Financial sectors in MENA countries are generally still in the early phases of economic development. Capital markets are weak or almost non-existent, and financial markets are dominated by bank-financed credit mechanisms. In this framework, banks are the main suppliers of credit to private and public investment projects and they also finance government deficits. While this feature is common to many other emerging economies, banking sectors in the MENA region are unique in three aspects. First, the recent oil price hike marks the beginning of a new era that was last witnessed a quarter of a century ago. Investment opportunities in the United States using petrodollars coming from the Middle East became more restricted after 11 September, so that oil surplus funds have to be channeled to productive uses elsewhere in the world. Monetary authorities in MENA countries generally require banks to adopt international accounting standards and to comply with international regulatory requirements, including Basel II and anti-money laundering recommendations. Still, a major concern is raised regarding the absorptive capacity of banks in the MENA region to recycle oil surplus funds, justifying the concerns of policymakers with appropriately designing policies for more efficient and stable banking systems. Second, banking systems in the MENA region have traditionally been very highly concentrated markets. Table 1 shows the three-bank average concentration ratios over the period 2000–2006 based on total assets. While Lebanon, Morocco, Saudi Arabia, Tunisia, Turkey and UAE have a three-bank concentration ratio ranging between 37 and 57%, bank concentration in Algeria, Bahrain, Jordan, Oman and Qatar exceeds 80%. In spite of historical high concentration ratios, intense merger activity is also taking place within and across several MENA countries. In some countries where a large number of banks operate, like Lebanon, Turkey and the UAE, large banks have sought to consolidate their position domestically before expanding in the region. In other countries like Jordan and Kuwait, leading banks are strategically investing across borders in order to enhance their growth potential. Ongoing consolidation of financial institutions within each country and regionally justly intensifies public policy debates on issues of concentration and competition in the banking industry. Table 1. Three-bank total asset concentration average in MENA banking, 2000–2006 Country Concentration Algeria 85.92 Bahrain 80.47 Jordan 87.15 Kuwait 68.51 Lebanon 37.86 Morocco 49.50 Oman 79.14 Qatar 90.99 Saudi Arabia 56.11 Tunisia 45.09 Turkey 44.60 United Arab Emirates 49.62 Source: Author's calculations based on data retrieved from the BankScope database. Table options Third, the governance structure of MENA banks is evolving, following accession to the World Trade Organization (WTO) and greater commitment to financial liberalization. Traditionally, banking institutions in the MENA region were either mostly family-owned businesses managed by major shareholders who cater for their own personal interests, or dominated by state authorities, thus making it more difficult for new firms to compete in the industry. The past decades, however, have altered the ownership of large shares of the banking systems from government to private control and from domestic to foreign control. Such changes occurred as governments privatized many of their state-owned banks and reduced barriers to foreign entry, in line with the WTO accession requirements. Leading international financial intermediaries such as Citigroup, HSBC, BMP Paribas, ABN Amro and Standard Chartered have generally set up a wide presence in the MENA region through subsidiaries and are competing with domestic banks in different segments of the industry. Foreign investors bring in state-of-the-art technology, sophisticated risk management techniques and qualified human capital, forcing domestic banks to undergo major structural reforms in order to compete on an equal platform with their peers. Together, financial liberalization measures and incentives to attract foreign banks lead to better disclosure requirements which, together with a better regulatory environment, ultimately have a positive effect on a country's growth performance. It is worthwhile noting that, in addition to intense competition from foreign banks, commercial banks in the MENA region are also facing increased competition from Islamic banks. Recently, banks operating in accordance with the Islamic legal code have proliferated in the MENA region and have become established as viable modes of financial intermediation, thereby increasing competitive pressures in the industry. Table 2 shows the distribution of total assets in the MENA region across commercial and Islamic banks in the years 2000 and 2006. The figures indicate that the banking industry has more than doubled in size from $934,477 to $2,478,841 million between 2000 and 2006. However, this was accompanied by a decrease in conventional banks’ share of the market which shrank from 94.12% in 2000 to 88.82% in 2006. During the same period, the share of Islamic banks almost doubled from 5.88 to 11.18% of the banking industry. Table 2. Distribution of total assets across commercial and Islamic banks in the MENA region Specialization 2000 2006 Million US$ % of total Million US$ % of total Commercial banks 879,554 94.12 2,201,603 88.82 Islamic banks 54,923 5.88 277,238 11.18 All 934,477 100.00 2,478,841 100.00 Source: Author's calculations based on data retrieved from the BankScope database. Table options In view of these developments, interest in competitive conditions in banking in the MENA region started to emerge. Issues of concentration and competition have been studied in the literature on the international scale (Claessens & Laeven, 2004), for developed countries (Bikker & Haaf, 2002) and for emerging economies (Gelos & Roldos, 2004), but not for MENA banking sectors.2 A recent paper by Al-Muharrami, Matthews, and Khabari (2006) assesses market structure and the degree of competitiveness in the six Gulf Cooperation Council (GCC) countries using traditional measures of concentration and the Panzar and Rosse (PR 1987)H-statistic. Their findings indicate that banks operating in the GCC region operate under either monopolistically competitive or perfectly competitive conditions, notwithstanding the relatively high degree of concentration levels in the industry. This study contributes to the literature on market structure in Arab banking systems by using a larger sample to include non-GCC Arab countries of the Middle East and North Africa. It estimates a measure of competitiveness in 12 very highly concentrated banking sectors in the MENA region, and relates it to a set of industry and contestability indicators to explain differences in the degree of competition across countries. The findings reveal that, except for North Africa where the tests of hypotheses fail to reject monopoly, monopolistic competition best describes market structure in other banking sectors in the MENA region and that high concentration does not adversely affect competitive conditions in the region. In line with the results reported in the literature for most mature and emerging markets (Bikker & Haaf, 2002; Claessens & Laeven, 2004; Gelos & Roldos, 2004), banking systems with few activity restrictions and greater foreign bank participation are found to be highly competitive. Further, the general level of economic development is found to be a significant factor that explains differences in the degree of competitiveness in the MENA region. The rest of the paper is organized as follows. Section 2 surveys the research literature on competitive conditions using the PR methodology. Section 3 presents the PR estimation to assess the degree of competitiveness, based on the relationship between revenues and marginal costs. Section 4 presents the data and the estimated competitiveness scores. Section 5 investigates the factors that account for differences in competitive behavior in MENA banking. The conclusion is offered in Section 6.

This paper examines competitive structures in 12 highly concentrated MENA banking sectors over the period 2000–2006 and investigates factors that can explain differences in the degree of competitiveness. The PR methodology is used to account for the competitive nature of banking and the estimated measure of competition, the H-statistic, is related to a number of industry controls and prevailing banking structures. To my knowledge, no econometric analysis of the degree of competitiveness in MENA banking was conducted before. The results show that, except for countries of North Africa where monopolistic conditions cannot be ruled out, the market structure in MENA banking systems can best be described as monopolistically competitive. While concentration levels have historically been high in banking in the region, there is cross-country evidence that MENA banking markets are contestable. Foreign competition (or the threat thereof) moderates any eventual decline in competition resulting from consolidation. Fewer activity restrictions – reflected in more open banking systems with few restrictions on entry and branching – add to the competitive pressures in banking. This suggests that assuring greater market contestability by allowing more foreign bank participation and reducing activity restriction on banks is most important to guaranteeing competitiveness in MENA banking systems. Most MENA countries are committed to financial liberalization. Banks are increasingly required to adopt international accounting standards and prudential guidelines of capitalization and governance, while foreign banks are encouraged to become active players in domestic markets. The results convey an important message to regulators concerned with the traditional high concentration levels observed in MENA banking sectors. Specifically, the analysis lends support to policy decisions to develop contestable markets to assure competitiveness in banking.