Banking and Financial Systems in Gulf Cooperation Council (GCC) Countries

Abstract

This chapter provides an overview of the financial systems of the Gulf Cooperation Council countries: Saudi Arabia, United Arab Emirates, Bahrain, Kuwait, Oman and Qatar. It covers the development of individual GCC countries’ banking systems and financial markets, an analysis of the performance of Gulf banks, and briefly outlines recent moves to create a GCC economic and financial union. In general these countries have experienced various financial reforms aimed at strengthening their financial systems. These have mainly included moves to deregulate as well as to improve prudential standards. Stock markets have been upgraded and they have begun to play a wider role in financing various economic sectors within their respective countries, although their importance remains limited. Commercial banks still dominate GCC financial systems and banking systems are highly concentrated. Gulf banking systems show favourable improvement in terms of their asset quality, capital adequacy and profitability during the 1990s. Such indicators reflect an enhanced role for financial intermediaries in the process of economic growth and exhibit the positive impact of economic and financial reforms undertaken in these countries. Furthermore, from earlier analysis we know that financial systems have deepened in these countries and the proportion of credit allocated to the private sector as a percentage of GDP has increased, suggesting that banks have become more efficient in allocating financial resources within the respective countries.