Current Developments and Prospects for Arab Banks

Abstract

Since the late 1990s banks throughout the Arab world have been generating strong returns to their shareholders. This performance has resulted mainly from banks’ emphasis on improving their cost and revenue performance and also managing their risk exposures more effectively. Shareholder (or stakeholder) value has become a critical driver of bank strategy. Much greater attention is nowadays placed on the efficient allocation of capital throughout the banking firm. Risk and return features of banks’ operations are managed more effectively and this has also encouraged the trend to more performance-enhancing balance sheet and risk management practices, such as the growing use of sophisticated securitization and credit risk management techniques. Arab banks now place much more emphasis on boosting their non-margin income from off-balance sheet activities such as from trading, underwriting, private banking and asset management business. The banking industry has also been transformed by consolidation and profits strengthened by buoyant domestic economies. Banking markets have become more concentrated and at the same time more competitive as new financial and non-financial entrants make the banking business more contestable. In addition, universal banking continues to be the dominant form of bank operational model.