Description:
Although both domestic and foreign
private banks have gained ground in MENA in recent years,
state banks continue to play an important role in many
countries. Using a MENA bank-level panel dataset for the
period 2001-08, the paper contributes to the empirical
literature by documenting recent ownership trends and
assessing the role of ownership and bank performance in MENA
while accounting for key bank characteristics such as size
and balance sheet composition. The paper analyzes headline
performance indicators as well as their key drivers and
finds that state banks exhibit significantly weaker
performance, despite their larger size. This result is
mainly driven by a larger holding of government securities,
higher costs due to larger staffing numbers, and larger loan
loss provisions reflecting weaker asset quality. The results
reflect both operational inefficiencies and policy mandates.
The paper also provides a detailed performance analysis of
foreign and listed banks. Foreign banks are fairly new in
MENA, yet perform on par with domestic banks despite their
smaller size and higher investment costs. Listed banks
exhibit superior performance driven by higher interest
margins even in the face of higher costs associated with
listing. Taken together, the results do not reject the
development role for state banks, but do show that their
intervention comes at a cost. As such, there is scope to
reduce the share of state banks in some countries and to
clarify the mandates, improve the governance, and strengthen
the operational efficiency of most state banks in MENA.