Banking and Finance

The Arab banking sector continues to contribute significantly to the growth of Arab economies. The consolidated assets of the Arab banking sector amounted to around USD 3.4 trillion by mid- 2018, making up about 140 percent of the region’s GDP. While the total deposits of the Arab banking sector amounted to USD 2.1 trillion – the equivalent of 87 percent of the size of the Arab economy—, the volume of credit injected by the banking sector in the Arab region reached around USD 1.9 trillion, or 75 percent of the region’s GDP in 2018.[1] The United Arab Emirates banking sector ranked first in the Arab region on the volume of its consolidated assets, which amounted to USD 748.8 billion by mid-2018, followed by the Saudi and Qatari banking sectors with consolidated assets of USD 616.5 billion and 382.5 billion, respectively. On the other hand, the consolidated assets of the banking sectors in Sudan and Mauritania amounted to only USD 10.0 billion and USD 2.9 billion, respectively.[1]
 

Financial inclusion [*] in the Arab region has been historically low compared to other regions.[2] The region’s account ownership for persons over 15 years stands around 37 percent, well below the world average of 69 percent. Women are particularly excluded, with only 26 percent of women reporting owning an account at a bank or another type of financial institution or personally using a mobile money service in the past year, compared to the global average of 65 percent.[3] Account ownership, however, is quite high in the GCC countries, reaching 88 percent in the United Arab Emirates and 83 percent in Bahrain; while in Yemen only 6 percent of adults reported having an account. Similarly, the Arab region lags behind other regions in terms of access to credit from formal financial institutions, with only 8 percent of persons over 15 years having borrowed from a financial institution or used a credit card, compared to the world average of 23 percent. The rate ranges from 46 percent in the United Arab Emirates to 1 percent in Yemen.[3]
 

Moreover, although small-and-medium enterprises (SMEs) play a major role in the economies of Arab countries, access to finance is one of the greatest challenges facing SMEs in the region, where only one in five has a loan or line of credit. In general, the percent of firms with a bank loan or line of credit is at 57 percent in Lebanon compared to only 6 percent in Egypt.[4] There is a great potential for the Arab region to expand financial inclusion that is still hindered though by the deficiencies in the financial infrastructure and regulatory frameworks that increase the costs and risks associated with increasing access to finance.
 

When assessing financial depth [**], major discrepancies appear across Arab countries. The total bank deposit to GDP ratio is the highest in Lebanon at 240 percent, and the lowest in Mauritania at 2.7 percent. The private sector credit to GDP ratio [***] which is also a reference of the role/size of the private sector in the national economy, ranges between 3 percent in Mauritania and around 100 percent in Kuwait.[5]
 

Islamic finance [****] has grown rapidly over the past decade; the assets of Islamic banks operating in the Arab region make up around 20 percent of the Arab banking assets, accounting for more than USD 650 billion.[1] Around 50 percent of the Islamic financial institutions are located in the Arab region[1], mostly being located in Sudan, Iraq and Bahrain.[1][6]



This overview has been updated by the ADP team based on latest available data as of June 2019.


Sources:
[1] Union of Arab Banks. 2018. Arab Banking Sector Results for the First Half of 2018. [ONLINE]. Available at: http://www.uabonline.org/en/research/banking [Accessed 13 July 2019].
[2] The Consultive Group to Assist the Poor. Nadine Chehade, Antoine Navarro, Yisr Barnieh, Habib Attia. 2017. Financial Inclusion Measurement in the Arab World. [ONLINE]. Available at: http://www.cgap.org/publications/financial-inclusion-measurement-arab-world-0 [Accessed 13 July 2019].
[3] The World Bank. 2019. The Global Findex Database 2017. [ONLINE] Available at: 
https://globalfindex.worldbank.org/ [Accessed 13 July 2019].
[4] The World Bank. 2019.
The World Bank Enterprise Surveys. [ONLINE] Available at: https://www.enterprisesurveys.org/Custom-Query [Accessed 13 July 2019].
[5] The World Bank. 2019. The Global Financial Development Database. [ONLINE] Available at: https://www.worldbank.org/en/publication/gfdr/data/global-financial-development-database [Accessed 13 July 2019].
[6] Union of Arab Banks. 2019. Recent global development of Islamic banking and finance. [ONLINE]. Available at: http://www.uabonline.org/en/research/financial/recentglobaldevelopmentsofislamicbanking/7471/1 [Accessed 13 July
 2019].

 


[*] Financial inclusion refers to the access of individuals and businesses to useful and affordable financial products and services.

[**] Financial depth captures the financial sector relative to the economy or the size of banks, other financial institutions, and financial markets in a country, taken together and compared to a measure of economic output.

[***] Defined as the financial resources provided to the private sector by commercial banks and other financial institutions as a share of GDP.

[****] Islamic finance refers to the provision of financial services in accordance with Islamic jurisprudence (Shari’ah).



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