Competitive behavior in Middle East and North Africa banking systems

Abstract

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.