WPS5620


Policy Research Working Paper                      5620




        Bank Ownership and Performance
   in the Middle East and North Africa Region
                                   Subika Farazi
                                    Erik Feyen
                                   Roberto Rocha




The World Bank
Middle East and North Africa Region
Financial and Private Sector Development Unit
  &
Financial and Private Sector Development
Financial Systems Department
April 2011
Policy Research Working Paper 5620


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


  This paper is a product of the Financial and Private Sector Development Unit, Middle East and North Africa Region; and
  the Financial Systems Department, Financial and Private Sector Development. It is part of a larger effort by the World
  Bank to provide open access to its research and make a contribution to development policy discussions around the world.
  Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted
  at efeijen@worldbank.org, sfarazi@worldbank.org and rrocha@worldbank.org




         The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development
         issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the
         names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those
         of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and
         its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.


                                                       Produced by the Research Support Team
       Bank Ownership and Performance in the Middle East and North Africa Region

                             Subika Farazi, Erik Feyen and Roberto Rocha*




The World Bank
Washington DC




*
  Subika Farazi is a Financial Economist in the Middle East and North Africa Region (sfarazi@worldbank.org). Erik
Feyen is a Senior Financial Economist in the Financial Systems Department (efeijen@worldbank.org). Roberto
Rocha is a Senior Advisor in the Middle East and North Africa Region (rrocha@worldbank.org). The authors are
grateful to comments and suggestions received from Eva Gutierrez, Heinz Rudolph, Kevin Carey, Laura Ard, Maria
Soledad Martinez Peria, and Zsofia Arvai. The authors would also like to thank Diego Sourrouille for valuable
research assistance and Ali Awdeh and Rania Khouri (Union of Arab Banks) for sharing data and insights.

                                                       0
                                                       Table of Contents
1.     Introduction ............................................................................................................................. 1
2.     Review of the Empirical Literature on Bank Ownership and Performance ............................ 3
3.     Major Trends in Bank Ownership in the MENA Region ........................................................ 6
4.     Data and Methodology ............................................................................................................ 8
5.     Empirical Results................................................................................................................... 11
       5.1 Two-group comparison results............................................................................................. 11
       5.2 Regression Results ............................................................................................................. 15
6.     Is the Weaker Performance of State Banks Justified by their Policy Mandates? .................. 20
7.     Summary of Findings and Policy Implications ..................................................................... 23
References ..................................................................................................................................... 28
Appendix A: Number of Banks in MENA, 2001-2008 ................................................................ 43
Appendix B: Number of Banks in the Non-GCC Region, 2001-2008 ......................................... 44
Appendix C: Bank Ownership, Profitability, Interest Margin and Securities (Weighted) ........... 45

Figures
Figure 1: Share of State Banks in Total Assets (%), 1970-2005 .................................................. 31
Figure 2: Share of State Banks in Total Assets (%) in MENA, 2001-08 ..................................... 31
Figure 3: Share of State Banks in Total Assets in MENA Countries (%), Averages 2001-03 and
2006-08 ......................................................................................................................................... 32
Figure 4: Share of Foreign Banks in Total Assets (%) in MENA, 2001-08 ................................. 32
Figure 5: Share of Listed Banks in Total Assets (%) in MENA, 2001-08 ................................... 33
Figure 6: Non-GCC countries ...........................................................................................................
Share of State Ownership in the Banking Sector and NPLS, 2008 .............................................. 33

Tables
Table 1: Asset Share of Banks in MENA, by Ownership and Other Categories, 2001-2008 ...... 34
Table 2: Asset Share of State Banks in Non-GCC Countries, 2001-2008.................................... 35
Table 3: Definition and sources of variables used in regression analysis..................................... 36
Table 4: Correlation Matrix of Variables used in Regression Analysis ....................................... 37
Table 5A: T and Rank Tests for Private vs. Public Banks in Non-GCC Region ......................... 38
Table 5B: T and Rank Tests for Domestic (Private) vs. Foreign Banks in Non-GCC Region .... 38
Table 5C: T and Rank Tests for Listed vs. Non-Listed Banks in Non-GCC Region ................... 39
Table 6A: Bank Ownership, Profitability, Interest Margin and Securities (Unweighted) ............ 40
Table 6B: Bank Ownership, Costs, Employment, Wages and Provisions (Unweighted) ............ 41
Table 7: Government Ownership of Banking Sector and Access to Finance ............................... 42
Table 8: Credit Growth of Public and Private Banks ................................................................... 42




                                                                        iii
1. Introduction
The last three decades witnessed a sharp reduction in the role of state-owned banks (state banks
for short) in most emerging countries. The share of state banks in total bank assets declined
significantly in most regions during this period (Figure 1). This decline in market shares was
dramatic in the Eastern Europe and Central Asian region, reflecting the transition from
communism in the 1990s, but was also impressive in the other regions. Today state banks
account on average for less than 50 percent of bank assets in most emerging regions, implying
that private banks lead financial intermediation in most countries.

This reduction in the role of state banks reflects a general disappointment with their financial
performance and contribution to financial and economic development, especially in the countries
where they dominated the banking system. In many countries it also reflects a reaction to the
large fiscal costs associated with their restructuring. However, despite their loss of market share,
state banks still play a substantive role in many regions, especially in East Asia, the Middle East
and North Africa, and South Asia (Figure 1). In some countries, state banks still lead the process
of financial intermediation, with market shares above 50 percent of total system assets. In most
other countries, state banks do not lead financial intermediation any longer, but still retain an
important role, with market shares varying between 20 and 50 percent. In general, state banks
only seem to play a negligible role in Eastern Europe and Africa. 1,2

The arguments that have been put forward to justify the continuing presence of state banks are
well known. State banks may address market failures resulting from asymmetric information
and poor enforcement of contracts that ultimately restrict access to credit by enterprises and
individuals. Moreover, they may also provide essential financial services in remote areas, where
access to finance is constrained by large fixed costs. Furthermore, state banks can also play an
important counter-cyclical role, helping prevent an excessive contraction of credit during a




1
 See Clarke, Cull, and Megginson (2005), and Levy-Yeiati, Micco, and Panizza (2007).
2
  The Eastern Europe and Central Asian region is very diverse in this regard. The average market share of state
banks is generally negligible in the first group but still large in the second group.
                                                      1
financial crisis. This latter argument is not new, but has been reinforced by the recent global
financial crisis.3

These arguments may justify policy interventions in many countries, although it does not
necessarily follow that state banks are the optimal type of intervention. For example, well-
designed credit guarantee schemes may address information asymmetries more effectively (by
preserving the leadership role of private banks) and may also play a countercyclical role.
Moreover, even in the cases where the presence of state banks may be justified, policy-makers
still face the challenge of ensuring clear mandates and sound governance structures in order to
minimize political interference and avoid credit misallocation and large financial losses ­ not a
trivial task in most countries. Therefore, the decision of whether state banks should continue
playing a role in the financial system entails a careful consideration of benefits and costs. In
making this decision, policy-makers should take into account many factors, including the past
performance and contribution of state banks in their countries and elsewhere.

The Middle East and North Africa (MENA) region is one of the regions where state banks have
lost market share but still play an important role in many countries. In the aftermath of the
recent global financial crisis, policy-makers in these countries have been considering whether
they should reduce further the role of these banks. Therefore, an analysis of the performance of
state banks in the MENA region can provide useful inputs to this decision. This is precisely the
main objective of this paper. We examine the trends in the structures of MENA banking systems
and assess the performance of state and private banks (domestic and foreign) at the bank level in
the period 2001-08. We also examine the association between the listing of banks and their
performance. In doing so, we diminish omitted variable bias by controlling for bank size,
balance sheet structures, and other variables.

The analysis of trends in the structure of banking systems covers the whole MENA region, while
the statistical analysis focuses on the nine countries in non-GCC (Gulf Cooperation Council)
area: Algeria, Egypt, Lebanon, Libya, Jordan, Morocco, Tunisia, Syria, and Yemen. We focus
the statistical analysis on the non-GCC countries because the distinctions between public and


3
  Micco and Pannizza (2007) had already shown that credit extended by state banks located in developing countries
is less pro-cyclical than credit extended by private banks. See also Levy-Yeiati, Micco, and Panizza (2007).
                                                        2
private ownership are more relevant and consequential in these countries (the stronger
interlocking ownership structures in the GCC tend to blur these differences).

The paper is structured as follows. The second section reviews the empirical literature on bank
ownership and performance. The third section examines recent trends in the structure of banking
systems in MENA, with focus on ownership patterns. The fourth section provides a description
of the dataset. The fifth section discusses the results from statistical analysis. This includes two-
group comparisons as well as regression results.          The sixth section discusses whether the
performance of state banks in MENA could be explained by the policy mandates imposed on
these institutions. Finally, the sixth section summarizes the main findings and identifies the main
policy implications.

2. Review of the Empirical Literature on Bank Ownership and Performance
The empirical literature on bank ownership and performance can be divided into three broad
groups. The first group examines the financial performance of individual banks controlling for
ownership and other bank-level characteristics, such as size and balance sheet structures. The
second group of empirical studies examines whether state banks contribute positively to financial
development and economic growth, a more ambitious and challenging objective. The third
group of studies examines the interactions between the actions of state banks and the political
cycle, to assess the degree of political interference on these institutions.

One of the main objectives of the first group of studies is to assess whether bank ownership
affects performance, as measured by profits, margins, costs, and the quality of loan portfolios.
For example, Demirgüç-Kunt and Huizinga (2000) focus on foreign ownership and find that
foreign banks generate higher interest margins and profits, especially in developing countries.
Micco, Panizza and Yañez (2004) provide a comprehensive analysis of bank ownership and
performance and conclude that state banks in developing countries tend to have lower profits,
higher costs, and larger non-performing loans relative to private banks. Foreign banks on the
other hand are more profitable and have lower costs.

However, in both this study and a subsequent study (Levy-Yeyati, Micco and Panizza (2007)),
the authors caution against drawing immediate conclusions from the weak financial performance
of state banks as it may reflect not only extensive political interference (e.g. in lending and
                                                   3
employment decisions) and operational inefficiencies, but also their development mandates.
Moreover, the authors do not find a strong correlation between bank ownership and financial
performance in industrial countries, suggesting that state banks in these countries have been able
to operate with clearer mandates and sounder governance structures.

The second line of empirical research is best exemplified by the influential study by La Porta,
Lopez-de-Silanes and Shleifer (2002). In this paper, the authors show that higher government
ownership of banks is associated with slower subsequent financial development and GDP
growth. Barth, Caprio and Levine (2006) find similar results in a study focused on banking
regulation. However, Levy-Yeiati, Micco and Panizza (2007) revisit La Porta, Lopez-de-Silanes
and Shleifer (2002) by using more recent data, better estimation techniques, and additional
controls and show that the evidence that state bank prevalence lead to lower growth and financial
development is not strong. Two recent papers (Korner and Schnabel (2010) and Andrianova,
Demetriades and Shortland (2010)) reach similar conclusions. They find a negative relationship
between a high fraction of public ownership in the banking system and growth when financial
development and the quality of political institutions are low, conditions that tend to prevail in
developing countries. However, similar to Levy-Yeyati et al (2007), they don't find a negative
impact of public ownership and growth in developed countries. They stress that the quality of
institutions and governance are important in studying the impact of public ownership on growth.

The third group of studies examines the interactions between credit decisions of state banks and
the political cycle. Dinc (2005) uses a large cross-country sample and finds that in election years
the pace of credit from private banks slows, while the growth of credit from state banks remains
constant. Cole (2008) finds in the case of India that lending by state banks increases in election
years. Khwaja and Mian (2005) show that in Pakistan politically-connected firms borrow more
from state banks and have higher default rates. Sapienza (2004) shows that Italian state banks
charge lower interest rates in the provinces where the party of the bank's chairman is stronger. In
the same line, Micco et al. (2007) find that state financial institutions have lower profitability and
higher costs than commercial banks and that the gap widens during election years.

All in all, these studies suggest that while there may be a development role for state banks in
developing countries, state banks also have to operate under a more hostile institutional

                                                  4
environment in these countries. Extensive political interference in credit and employment
decisions, blurred mandates, poor governance structures, and severe operational deficiencies may
eventually outweigh the potential for these banks to address their development mandates and
contribute to financial and economic progress. Overcoming these institutional weaknesses and
ensuring a supportive environment for state banks is not a trivial task in many developing
countries.4

There is limited research on bank ownership and performance focused on the MENA region.
There are some country-level studies (e.g. Omran (2007) for Egypt, Isik, Gunduz and Omran
(2004) for Jordan, Bennaceur and Goaied (2001) for Tunisia, and Turk-Ariss (2008) for
Lebanon) that examine the overall efficiency and performance of these banking sectors. The
studies with a regional focus tend to stress specific aspects such as economies of scale (Olson
and Zoubi (2010)) or institutional aspects such as Islamic banking (e.g. Sufian et al (2008) and
Ben Khediri and Ben-Khediri (2009)).              The study by Kobeissi and Sun (2010) is possibly the
only exception in this regard. The authors analyze the impact of ownership structure on bank
performance in 17 MENA countries, and find that private banks perform better than state banks,
as measured by higher returns on assets and equity. They also find that the presence of foreign
banks seems to have a positive impact on the performance of local banks. Moreover, banks listed
in the stock market are also found to have higher performance rates.

Our study is similar to Kobeissi and Sun (2010) in some methodological aspects, but also has
some important differences. First, the samples are not identical ­ while Kobeissi and Sun adopt
a broad definition of MENA that includes Iran, Israel, Mauritania and Turkey, we not only
exclude these countries, but also focus the statistical analysis in section 5 on the non-GCC
countries. As noted before, we focus on the non-GCC countries because the distinctions between
public and private ownership are more relevant and consequential in these countries. Second,
Kobeissi and Sun only focus on measures of profitability, while we explore other measures of



4
  In the same vein, Rudolph (2009) analyzes the experience of four state financial institutions in Canada, South
Africa, Finland and Chile that have performed reasonably well for relatively long periods of time, and examines the
legal and institutional factors explaining this performance. Replicating these conditions would require a significant
policy effort in many developing countries.

                                                         5
performance, and make an attempt to explain the differences between the profitability of state
and private banks from its main determinants, i.e. margins, costs, employment, wages, and loan-
loss provisions.

3. Major Trends in Bank Ownership in the MENA Region
As shown in Figure 2 and Table 1, the overall market share of state banks in MENA declined
only moderately in the decade, from 41 percent of total assets in 2001 to 33 percent in 2008.
However, this outcome was essentially due to the stable average share of state banks in the GCC
countries ­ around 28 percent of total bank assets during most of this period. By contrast, the
average market share of state banks in the non-GCC countries declined significantly ­ from 56 to
41 percent of total assets in the same period.

Within the non-GCC region, two groups of countries can be identified. In the first group state
banks play a dominant role (Algeria, Libya, and Syria), while in the second group private banks
lead financial intermediation (Egypt, Jordan, Lebanon, Morocco, Tunisia, and Yemen). As
shown in Figure 2, the average market share of state banks declined by a similar amount in the
two groups (around 13 percent of total assets), but this decline took place from very different
initial positions. In the first group state banks still dominate financial intermediation despite
their loss of market share (86 percent in 2008), while in the second group private banks have
generally consolidated their leadership position (71 percent in 2008).

These averages provide a very useful overview of the overall trends in MENA, but they also
mask important differences across individual countries. As shown in Figure 3, most MENA
countries experienced a decline in the share of state banks during the decade, but the differences
across countries are significant. The role of state banks is already modest or negligible in one set
of countries, including Saudi Arabia, Yemen, Bahrain, Jordan, Kuwait, Lebanon, and Oman. On
the other extreme, state banks still dominate financial intermediation in Algeria, Libya, and
Syria, as noted above. However, it is interesting to note that Syria has made more progress in
reducing the share of state banks in recent years through the entry of new private banks (there
has been no major privatization until now), although state banks still play a dominant role with a
market share of 70 percent of total assets.



                                                 6
There is also an intermediate group of countries where the market share of state banks declined
to 50 percent of total assets or lower levels, but still remains significant. In these countries state
banks do not lead the process of financial intermediation any longer but have still retained an
important role. These countries include Egypt, the UAE, Qatar, Tunisia, and Morocco. Note
that Egypt is included in this group because of recent financial sector reforms that have reduced
the market share of state banks to about 45 percent of total assets.5

Foreign banks have increased their average market share in the non-GCC region (Figure 3 and
Table 1), while decreasing slightly in the GCC region. In the case of the GCC the decline was
relatively modest (from 26 percent in 2001 to 20 percent in 2008) and offset by an increase in the
market share of private domestic banks (to yield a stable average share of private banks).
However, the expansion of foreign banks was more significant in the non-GCC region,
especially in recent years. The share grew from 8 percent in 2001 to 20 percent in 2008, which is
almost double the share in 2005.

There are also some interesting patterns in the two sub-sets of non-GCC countries that are worth
highlighting. As shown in Table 1, the share of private banks in the first group of countries (i.e.
countries where private banks lead) increased initially because of the expansion of domestic
banks but since 2005 foreign banks have expanded at a faster pace. These foreign banks
represented 20 percent of the system in 2008 and are mostly international banks with
headquarters outside the region, as opposed to regional banks. By contrast, the expansion of
foreign banks in the second group of countries (i.e. countries where state banks lead) from 1 to
13 percent of the system in 2001-08 also accelerated in recent years, but this expansion was
primarily driven by regional banks.

There was also a rapid increase in the share of listed banks in both the GCC and non-GCC
regions, as shown in Figure 5 and Table 1. For example, in all non-GCC countries, listed banks
accounted for 56 percent of assets in 2008 compared to 29 percent in 2001. Some banks decided
to list for strategic considerations, including the need to access external funding in order to
sustain high credit growth, while in other countries this trend was due to regulatory requirements.


5
 These reforms included the divestiture of state shares in several joint venture banks and the privatization of Bank
of Alexandria.
                                                          7
In Syria, for example, all new private banks have been required to list, and this explains the rapid
increase of listed private banks in the group of countries with state-led banking systems.
Interestingly, there was also a modest increase in the number and market share of listed public
banks during this period.

In sum, state banks lost market share in practically all MENA countries during the last decade.
The exceptions were those countries where their role was already negligible. However, state
banks still dominate the banking system in three countries: Algeria, Libya and Syria. There is a
second group of countries where state banks do not lead anymore but still hold significant shares
varying from 25 to 50 percent of total assets: Egypt, Qatar, the UAE, Morocco, and Tunisia.
Foreign banks increased their market share in both the GCC and non-GCC regions. The increase
was modest in the GCC but more significant in the non-GCC countries. In most countries the
expansion of foreign banks (both regional and international banks) has been relatively recent and
many of these banks remain small, as shown below. They seem to occupy specific niches and
may not yet be able to challenge domestic banks in their main markets.6

There was a significant increase in the share of listed banks during the last decade. Some banks
seem to have listed to gain easier access to external funding, while in other cases this increase
reflected regulatory requirements. Listed banks are usually subject to stricter corporate
governance rules and disclosure requirements and are in principle subject to closer scrutiny by
market participants. The extent to which these outcomes materialize depends on the quality of
governance rules and disclosure requirements, their enforcement by regulators, and effective
monitoring by capital market institutions. Finally, we note that few state banks were also listed
during this period, although the period of listing is too recent and the sample too small to allow
for any type of statistical testing.

4. Data and Methodology
We adopt a comprehensive, bank-level empirical analysis to assess the association between bank
ownership and performance in nine non-GCC MENA countries. In doing so, we proceed along

6
  Anzoategui, Martinez Peria and Rocha (2010) show that bank competition in MENA is still weaker than in other
regions. This may reflect a variety of factors, including lack of critical mass of private banks in some countries
(including foreign banks), poor financial infrastructure resulting in weak access of smaller private banks to credit
information (including foreign banks), and lack of competition from non-banking institutions and markets.
                                                         8
two lines. First, we conduct standard two-group comparison tests and assess whether statistically
significant differences exist between the relevant bank groups (e.g. state versus private, domestic
versus foreign, listed versus non-listed). These statistical tests provide useful initial insights into
how ownership and bank performance are associated, although they have to be interpreted with
care, because bank performance is determined by many factors in addition to ownership.

Therefore, in a second step we turn to bank-level multivariate panel regression analysis in which
we analyze ownership while simultaneously controlling for various bank characteristics. For our
regressions we employ simple Ordinary Least Squares (OLS) on pooled annual bank data for the
period 2001-08. Throughout our regressions we also include country- and time-fixed effects to
mitigate omitted variable bias. By introducing these fixed effects we aim to control for general
country conditions to which the banks are exposed throughout the sample years.

We also account for the possibility that the results could be driven by countries that have a larger
number of banks. Therefore, we also conduct regressions where each bank-year observation
carries a weight that is inversely proportional to the number of banks in its banking system in
that particular year. We also relax the independency and homoskedasticity assumptions that are
required by OLS by reporting three standard errors variations: 1) Huber/White robust standard
errors and robust standard errors corrected for possible intra-group correlation for which we
consider 2) a bank- or 3) a country-level grouping of bank-year observations7.

Most of our data are taken from Fitch's Bankscope database and include unconsolidated
statements of commercial banks in MENA. The sample roughly comprises 600 bank-year
observations of about 120 banks in 9 countries for the period 2001-08. As noted before, our
sample consists of banks in Algeria, Egypt, Jordan, Lebanon, Libya, Morocco, Tunisia, Syria,
and Yemen. Table 3 provides an overview of variable definitions and their sources. Table 4
shows pairwise correlations. Appendix A shows the number of banks for each country by year.

Our main dependent variables can be grouped into four clusters. First, we consider general
profitability and interest-related factors. We investigate the standard profitability indicators
Return on Assets (ROA) and Return on Equity (ROE). We use the Net Interest Margin (NIM) to



7
    Results for country-level groupings are not reported but are available from the authors upon request.
                                                            9
investigate the interest-related side of the business, where NIM is defined as net interest income
as a fraction of total assets. We further investigate NIM by dissecting this variable into its two
drivers ­ Interest Income to Assets and Interest Costs to Assets.

Second, we explore efficiency variables. To capture bank efficiency we use the ratios of total
Overhead Costs to Assets, and Personnel Costs to Assets. Further, we break the two cost ratios
between the underlying quantities and prices by computing the number of Employees per unit of
Asset and the related average wages.

Third, we study asset allocation to understand how banks allocate their resources between
lending and non-lending activities. We use the Securities to Assets ratio which encapsulates
many types of securities but is mostly driven by government securities. As such this ratio also
measures private sector crowding out effects to some extent.

Fourth, we examine asset quality and its impact on profitability. Aggregate country level data
show that countries that have a large share of state banks also have a high ratio of NPLs to total
loans (Figure 6). Ideally, we would use this indicator as a measure of asset quality, but we could
not obtain sufficient bank level data on non-performing loans (NPLs), especially for state banks,
due to deficiencies in financial disclosure. In order to capture differences in asset quality and its
impact on profitability we use the ratio of loan-loss provisions to gross loans. This indicator
captures the extent to which banks' loan portfolios are being contaminated by non-performing
loans and having an adverse impact on profitability.

Our explanatory variables include ownership variables which we compiled by using a variety of
sources including Bankscope, Bankers' Almanac and individual bank websites. We classify
equity holders as being either public or private, or domestic or foreign). Our public ownership
dummy assumes a value of 1 if the bank is majority government-owned and 0 otherwise.
Similarly, our foreign ownership dummy has a value 1 if the private bank is majority foreign-
owned and 0 otherwise. We do not differentiate between foreign banks (i.e. regional versus
international banks) because of small samples. By conducting the banks' and exchange website
searches, we also created a listed dummy variable that assumes a value of 1 if the bank is listed
on a stock exchange and 0 otherwise.


                                                 10
Finally, in line with other empirical studies, we also include a number of other bank-level
variables as controls, including total assets, the ratio of non-interest income to total assets, and
the ratios of deposits to assets and loans to assets. Total assets capture scale effects, while the
other variables capture basic differences in the nature and business orientation of the bank.

5. Empirical Results
5.1 Two-group comparison results
     State versus Private Banks
We start with univariate, two-group comparisons to identify statistically significant differences
of our dependent variables between ownership types of banks. The whole sample of non-GCC
banks in 2008 includes 106 banks, including a group of 16 state banks and 90 private banks.
Table 5 presents the two-group comparison test results. We start by documenting that state
banks are significantly larger than private banks. This finding is important because bank size can
have a significant impact on performance through scale economies, particularly on cost ratios.

We find that private banks are significantly more profitable than public banks in the non-GCC
region. On average, private banks have an ROA (ROE) of 0.92 (11.16) percent compared to
0.52 (7.57) percent for the state banks. This result is in line with previous research and probably
reflects a mix of inefficiencies and policy mandates (Micco et al (2004), Levy-Yeiati, Micco and
Panizza (2007)). To understand the factors behind the lower levels of profitability we now
explore the differences between interest margins, operating costs, and provisions.

Interestingly, we find that the NIM of state banks is not significantly different from the NIM of
private banks. This is due to both lower ratios of interest expenses to assets and interest income
to assets. That is, state banks enjoy lower funding costs but also generate lower interest income
per unit of assets. This result is not surprising since state banks tend to mobilize deposits at a
lower cost (including lower-yield demand deposits), due to their size, branch network, brand
name, and implicit government guarantee. At the same time, the lower interest income ratio is
due to a higher share of government securities and possibly lending to state enterprises and
favored sectors at lower rates (this is examined further below). Note also in this regard that the
interest income and margins of state banks could be overstated by accrual of interest on non-
performing loans to state enterprises and favored sectors. Private banks have more limited

                                                11
access to cheap sources of funding but compensate for their higher costs by exploring more
profitable market segments such as trade finance, retail lending, and credit cards.

The ratio of securities to assets which mostly reflects investments in government-related
instruments is not significantly different between the groups, which would seem to contradict the
statements above. However, this is due to the inclusion of Lebanon in the sample. The Lebanese
case is unique in many aspects, comprising a very large and private banking system (deposits of
about 300 percent of GDP) due to large expatriate remittances and other inflows, a large public
debt of 150 percent of GDP, and substantial financing of the government by the banks.
Excluding Lebanon from the sample reveals that MENA state banks finance significantly more
their governments and generate less interest income as a result. State banks hold 20.2 of their
assets in securities, compared to only 13.9 percent for their private counterparts.

State banks have lower cost ratios, whether measured by the ratios of overhead costs to assets or
personal costs to assets, although the differences are not statistically significant in the last case.
This may seem counter-intuitive, but one must bear mind that state banks are much larger and
should enjoy stronger economies of scale as a result. The question is whether the differences in
cost ratios should be even larger considering the differences in size or, put differently, whether
state banks have larger cost ratios controlling for size. The fact that the ratio of personal costs to
assets is similar in the two groups suggests that the scale effect is being reduced by other factors.

This issue is examined in more detail in the next section by means of regression analysis, but the
last rows of Table 5A already provide an explanation for the lower cost ratios of state banks.
These banks have significantly higher ratios of employees per unit of assets, suggesting that they
are not being able to exploit the potential advantages of their larger scale. Their lower cost ratios
come essentially from lower average wages, whether measured by overhead costs per employee
or personal costs per employee.8 In other words, state banks have a much larger number of
employees but these are likely to be lower skilled workers on average. This finding is consistent
with their lower interest income, suggesting that state banks do not compete intensively in areas




8
    For example, the average wage in private banks is $25,600 compared to $17,250 in state banks.
                                                          12
that require more skills, or compete without the right skills and techniques and therefore are
more exposed to financial losses.9

The last row of Table 5A confirms that state banks have a much higher average ratio of loan loss
provisions to gross loans. The Bankscope database does not provide detailed information on the
composition of loan portfolios, but this result probably reflects losses resulting from lending to
state enterprises and favored sectors.          In this regard, state banks might be fulfilling their
development mandates, whereby they are directed to finance projects and sectors that may
generate low returns or entail excessive risks, but that are regarded as strategic or capable of
generating positive externalities. These losses are probably aggravated by the own internal
operational deficiencies of state banks in fulfilling these mandates.

By contrast, private banks pay higher average wages in order to attract higher-skilled workers
and develop more sophisticated and profitable business lines while being able to manage the
associated risks relatively well. At the same time, they are also able to maintain a lower ratio of
employees to assets. Thus taken together, these results show that private banks are ultimately
able to generate higher profits compared to state banks despite their smaller average size, by
exploring more profitable business lines, containing their operating costs, and managing their
risks more effectively.

      Domestic private versus foreign private banks
Next we analyze the differences between foreign and domestic private banks. In 2008, there
were 90 private banks in non-GCC MENA countries of which 45 were domestic and 45 were
foreign. As shown in table 5B, we find that foreign banks are significantly smaller, reflecting at
least partly their more recent entry into banking systems in the region (see the previous section).

Foreign banks have been more profitable than private domestic banks, as indicated by higher
ROAs and ROEs. Although these differences in profitability are not statistically significant, this
still suggests important efficiency differences, given that foreign banks are smaller. Foreign
banks also generate higher NIMs but the differences vis-à-vis private domestic banks are not



9
 Rocha, Farazi, Khouri, and Pearce (2010) show that state banks in MENA are as involved in SME finance as
private banks, but do not seem to have the same levels of risk management and SME lending techniques.
                                                      13
significant either. Interestingly, foreign banks enjoy lower funding costs probably because they
can leverage internal funding markets and the parent's balance sheet and reputation. However,
they are not able to generate higher interest income relative to private domestic banks, despite
holding smaller securities portfolios. On the other hand, they generate more non-interest income
relative to domestic banks. These results suggest that domestic banks are more embedded in
local credit markets, whereas foreign banks are still more involved in niche markets such as
upscale consumer lending and non-interest income business lines such as foreign exchange
commissions, advisory services, and letters of credit.

Foreign banks have higher cost ratios relative to domestic banks, a result that may seem
surprising given their presumed sophistication although this could simply reflect their smaller
size. Their ratio of employees to assets is higher, consistent with their modest scale, and helps
explain their higher cost ratios. Interestingly, foreign banks pay lower wages than private
domestic banks, but this is not sufficient to offset the higher ratio of employees to assets to
achieve lower costs. One possible reason why foreign banks pay lower wages is that some of the
sophisticated and costly work is centrally executed in the head office. However, this is likely to
change as foreign banks become better integrated into local markets. The question is whether
foreign banks are less efficient than private domestic banks controlling for size, a question that is
addressed in more detail in the next section.

     Listed versus non-listed banks
In this final sub-section we compare the performance of listed banks and non-listed banks. The
number of listed banks increased significantly during the sample period as noted above. In 2008
there were 65 listed banks in the nine non-GCC countries in the sample, accounting for 61
percent of the number of banks and 56 percent of total assets. Out of the 65 listed banks, 60 are
private banks and 5 are state banks.

We note that listed banks are on average smaller than non-listed banks, although the difference is
not statistically significant (Table 5C). Listed banks are significantly more profitable, whether
measured by the ROA or the ROE. For example, the ROA for listed banks is 1.03 percent
compared to 0.64 percent for non-listed banks. The average NIM of listed banks is higher than
that of non-listed banks, but the difference is not statistically significant. As expected, listed

                                                 14
banks are able to fund themselves at lower rates. However, they also generate less interest
income per unit of asset which is surprising, especially considering that they finance the
government to a lesser extent. At the same time, listed banks generate much larger income from
fees and commissions, which helps explain their higher profitability.

Listed banks have higher cost ratios vis-à-vis non-listed banks. Since average wages in the two
groups are similar, this is due essentially to a higher ratio of employees to assets. This result
may be partly explained by their smaller size, but could also be explained by the stricter
corporate governance, disclosure and compliance requirements imposed on listed banks, which
may translate into more staff requirements and higher costs. At the same time, these
requirements probably also explain why these banks are able to maintain better quality portfolios
and lower levels of provisioning, and are ultimately able to generate higher profits despite their
higher operating costs.

5.2 Regression Results
In this section we use regression analysis on a sample of annual bank observations in nine non-
GCC MENA countries for the period 2001-08 to elaborate on our two-group comparison
findings. Table 6 reports the mains results while Appendix C reports additional results involving
weighted regressions. Our weights are inversely proportional to the number of banks in a given
country to account for differences in the number of banks per country which could skew the
results in favor of countries with more banks.

Our main independent variables of interest are a set of dummies: public, foreign, and listed. By
including these dummies simultaneously, their regression coefficients need to be interpreted
relative to the reference group of private, domestic, and non-listed banks. To account for
confounding factors we also include the following bank-level, time-varying controls. As a
measure of bank size we use the 1-period lag of the log of total assets. To distinguish between
the different strategies on income-generating activities of banks, we also include the non-interest
income to total assets. In line with other empirical studies, to control for different asset and
funding management approaches, we use the deposit to assets and loan to assets ratios. In
addition to bank-level controls we also include time and countries dummies to capture the
general regional trends and country-specific time-invariant conditions.

                                                 15
Since the main objective of the paper is to examine the impact of ownership and listing on
performance, we focus on the rows when analyzing the different regression results (e.g. we
analyze the results for the state bank dummy in different regressions). This approach also allows
for an easier comparison with the results of the previous section. However, we also highlight
important results in each column (i.e. in the same regression) as we examine the results.

     State bank ownership and performance
Regressions 1 and 2 in Table 6A confirm that state banks are on average less profitable than
private domestic, non-listed banks. The finding is statistically significant, after controlling for
bank size and balance sheet structures, and also holds in our weighted regressions (Appendix C).
The ROA and ROE are 0.513 and 6.731 percentage points lower for state banks, respectively,
controlling for our set of bank-level factors. These findings are consistent with previous research
on bank profitability in developing countries (Micco et al (2004)) as well as MENA-specific
research (Kobeissi and Sun (2010)). Note that these are strong results, as they show that state
banks are significantly less profitable than the least profitable segment of private banks (i.e.,
domestic and non-listed banks), controlling for size and other factors.

Regression 3 shows that state banks generate smaller net interest margins vis-à-vis private
domestic banks although the coefficient is small and not significant. State banks do not have
different interest income and expense ratios either, after controlling for size and other factors.
We confirm through regressions 6 and 7 that state banks in MENA tend to hold larger portfolios
of government securities after controlling for size and balance sheet structures. This probably
reflects a mandate for state banks to participate in government debt auctions and contribute to
debt finance, regardless of their size and structure of funding. Intriguingly, this asset structure
does not seem to have a major negative impact on interest margins, but it is possible that this
result is partly due to accrual of interest on non-performing loans, as noted before.

Regressions 8 ­ 10 confirm that state banks have higher cost ratios after controlling for their
larger size, which helps explain their lower profitability. Moreover, regressions 11 ­ 13 confirm
that their higher cost ratios are generated by much higher ratios of employment to assets, and not
by higher wages. In fact, state banks pay considerably lower wages to their employees, relative
to their private counterparts, a result that reflects their lower skills base as noted before. These

                                                 16
results show that state banks are not able to exploit effectively their scale economies. The
coefficients of the scale variable across different regressions show that larger banks tend to have
significantly lower ratios of employees to assets and lower cost ratios, despite paying
significantly higher wages. This suggests the existence of substantive scale economies that
contribute to higher returns on equity for larger banks. However, for state banks this is offset by
a large employment base that contributes to higher cost ratios and lower profitability.

Finally, regression 13 confirms that state banks tend to have significantly higher ratios of loan
loss provisions to gross loans. This bank-level result is therefore consistent with country-level
data showing that countries where state banks command a larger market share tend to have
higher aggregate NPL ratios (Figure 6). The need to provision for larger losses in their loan
portfolios probably reflects a larger share of lending to state enterprises as well as lending to
favored sectors, relative to private banks, combined with limited capacity to manage the
associated risks. Together with the larger operating costs, this result also helps explain the lower
profit ratios of state banks. Section 6 provides further discussion on the possible impact of
policy mandates on the performance of state banks.

     Foreign bank ownership and performance
Regressions 1 and 2 show that foreign banks are slightly more profitable than private domestic
banks, a result that has been previously documented for developing countries as well (Demirguc-
Kunt and Huizinga (2000)), Micco et al (2004), and Kobeissi and Sun (2010)). However, the
dummy coefficients are not statistically significantly in our sample. As noted before, this could
be due to sample differences ­ we do not include countries such as Iran, Israel and Turkey, and
foreign bank presence is a relatively recent phenomenon in our sample. Thus, our tests could
simply fail due to lack of statistical power.

The lack of statistical power may be affecting other results as well. As shown in regression 3,
foreign banks generate higher interest margins but the differences vis-à-vis the reference group
are not significant. Intriguingly, they do not generate more interest income despite holding a
smaller portfolio of government securities (regressions 4 - 7). However, they benefit from lower
funding costs. Also, they have higher ratios of employment to assets and higher cost ratios, even
after controlling for their smaller size (regressions 8 ­ 11). Note also that they have higher cost

                                                17
ratios despite paying wages which are slightly lower than those paid by private domestic banks
(regressions 12 and 13 and section 4).10 These results would suggest lower levels of cost
efficiency for foreign banks, which is intriguing considering previous research.

Again, these results could simply reflect lack of statistical power and suggest that it is premature
to test the impact of foreign ownership on bank performance in non-GCC countries: most
foreign banks are still very small, are developing their market strategies, and have not yet been
able to penetrate the main credit markets. Moreover, the weak financial infrastructure of many
non-GCC countries (including weak credit reporting systems) deprives these small foreign banks
from essential credit information and prevents a more rapid expansion into potentially profitable
areas such as retail lending and SME finance.11

      Bank Listing and performance
Regressions 1 and 2 also show that listed banks are significantly more profitable, controlling for
size and balance sheet structures. The ROA and ROE coefficients are 0.269 and 3.654 percent
higher for listed banks, respectively. Kobeissi and Sun (2010) find qualitatively similar results
as well. Listed banks tend to generate higher net-interest margins, due to lower interest expenses
and higher interest income relative to total assets. The lower funding costs could reflect a lower
risk premium, as these banks are subject to stricter governance and disclosure requirements and
closer market scrutiny. The lower ratio of government securities to assets probably contributes
to higher interest income and higher interest margins. All the coefficients have the expected
signs and form a coherent picture, although we also note that some of these coefficients are not
statistically significant.

Regressions 9 - 13 also show that listed banks tend to have higher cost ratios due essentially to
higher wages, although some of these results are not statistically significant. However, the



10
   In section 4 we show that foreign banks generate larger revenues from fees and commissions. This helps explain
why these banks have slightly higher profit ratios than domestic banks despite having higher costs.
11
   Maddedu (2010) and de la Campa (2010) examine the quality of credit information systems and collateral regimes
in MENA and show that the region lags most other regions in the quality of financial infrastructure. Anzoategui,
Martinez Peria, and Rocha (2010) show that MENA banking systems seem less competitive than banking systems in
most other regions, and that this is probably due not only to bank regulations, but also to weak financial
infrastructure and less competition from non-banking sectors.
                                                       18
higher costs are more than offset by higher net interest margins and higher not-interest income
(section 4), resulting ultimately in higher profitability. Indeed, the higher wages paid by listed
banks could simply reflect a more skilled labor force, required to develop more sophisticated and
profitable lines of business. The higher profit ratios suggest that this strategy has paid off.
Finally, we note that listed banks have lower ratios of loss loan provisions to loans, although the
coefficient is not significant.

All in all, these results imply that listing generates higher costs but that these costs are more than
compensated by higher revenues and profits. As noted before, the stricter governance and
disclosure requirements imposed on listed banks could be driving these results. This
interpretation is consistent with a recent survey of bank governance in MENA (OECD (2009)),
which concludes that corporate governance of non-listed banks is generally poor, particularly
those that are family controlled ­ these banks tend to engage heavily in connected lending and
perform poorly as a result. This would suggest that MENA regulators should encourage or even
mandate listing, as some countries already do. However, there is also a possibility that our results
could be affected by selection bias: better managed and more successful banks may be precisely
those banks that decide to list.

      Bank structures and performance
Finally, we complement the analysis of ownership and performance by focusing briefly on the
impact of size and balance sheet structures on performance. We note that larger banks tend to be
more profitable, as indicated by higher returns on assets and equity, although only the latter
variable is statistically significant, and none of the profit indicators is significant in the weighted
regressions (Appendix C). Larger banks tend to have lower ratios of interest income to assets and
lower net interest margins, results that are consistent with their larger securities portfolios,
although most of the relevant coefficients are not statistically significant. Most importantly,
larger banks have lower cost ratios, despite paying higher wages on average. This result is
essentially due to a lower ratio of employees to assets, reflecting scale economies. These results
are all statistically significant and help explain their higher profitability.

Banks which generate higher non-interest income tend to have lower net interest margins (as
they focus on particular markets) and higher cost ratios but are still able to drive higher

                                                   19
profitability. The higher cost ratios are due both to higher wages and higher ratios of employees
to assets. The higher wages probably reflect the need for higher-skilled staff to develop more
sophisticated lines of business that generate substantial revenues from fees and commissions.
The higher ratio of employees to assets is not necessarily a sign of operational inefficiency but
rather reflects that non-interest business lines are relatively labor-intensive.

Banks that have higher ratios of deposits to liabilities tend to have higher interest expenses and
smaller margins, controlling for size. This result could simply reflect the fact that banks have to
pay higher interest rates to attract more deposits, holding constant their size (and branch
network). In general, changes in the ratio of deposits to liabilities by themselves do not seem
have significant effects on cost ratios or consistent effects on profitability (the impact on ROA is
negative while the impact on ROE is positive, although not significant), holding constant bank
size and ownership structures.

Finally, we find that banks with larger loan portfolios have lower profitability, controlling for
size and other characteristics. This result is not driven by differences in margins ­ although
banks with larger loan portfolios generate more interest revenue, they also need to pay more to
attract funding. The lower profitability could be explained by the larger costs required to sustain
large loan portfolios, again controlling for size. Intriguingly, the higher ratio of loans to assets is
associated with lower provisioning ratios. The latter could be due to lower concentration and
higher diversification effects in their loan books, although the result is admittedly surprising.

6. Is the Weaker Performance of State Banks Justified by their Policy Mandates?
Previous sections showed that the financial performance of state banks is substantially weaker
than that of private banks. Among others, they exhibit lower profitability, higher costs, and
weaker asset quality, controlling for their larger size and balance sheet structures. The question
is whether these weaker results could be explained or even justified by their development
mandates. State banks tend to have large branch networks and may provide essential financial
services in remote areas, where access to finance is constrained by large fixed costs. State banks
may also address market failures resulting from asymmetric information and poor enforcement
of contracts that ultimately restrict access to finance in key areas, such as SME finance, housing


                                                  20
finance, and investment finance. However, the effectiveness of MENA state banks in fulfilling
these mandates has been mixed as noted below.

We first consider the mandate to expand access to households in remote areas. State banks in
MENA tend to have larger branch networks and are generally more present in remote areas with
a smaller volume of business. Success in expanding access in these areas could explain the
higher ratios of employees and overhead costs over assets. Yet, we do not find evidence that
MENA state banks have made a significant contribution to access, as measured by the number of
deposit accounts per adult. Table 7 displays panel regression results that show the number of
deposit accounts per adult is even negatively associated with the share of state bank assets as a
percentage of total bank assets. This finding persists after controlling for differences in GDP per
capita, the degree of urbanization, and the number of branches. Although this analysis does not
account for the contribution of specialized institutions such as postal and agricultural banks, the
results suggest that the large staff of state commercial banks is probably due to outdated
technologies and labor redundancies (possibly reflecting the political constraints to reduce the
size of their staff), rather than a well-articulated strategy to promote access in remote areas.12

Regarding SME finance, there is evidence that state banks have contributed to access in this
important area, although they do not seem to have developed the capacity to manage the
associated risks. The average share of SME lending of state banks is similar to that of private
banks (about 10 % of the loan portfolio), as shown in Rocha, Farazi, Khouri, and Pearce (2011).
Moreover, they seem to have taken more risks in this area than private banks ­ they are less
selective in their strategies to target SMEs, have a lower ratio of collateralized loans to SMEs,
and a higher share of investment loans in total SME lending. However, state banks do not seem
to have the capacity to manage the associated risks ­ a lower share of state banks has dedicated
SME units, makes use of credit scoring and conducts stress tests.13 This lack of risk management
capacity reflects a lower skills base (consistent with their lower wages) and has probably
contributed to the poor financial results mentioned above, including higher NPLs (Figure 6),
higher levels of loan loss provisioning, and ultimately lower profitability.



12
     This finding is also consistent with Pearce (2011).
13
     Rocha, Farazi, Khouri and Pearce (2011).
                                                           21
Another key mandate is housing finance for which state banks in Algeria, Egypt, Morocco,
Syria, and Tunisia took the lead to develop the market which was non-existent due to a weak
institutional infrastructure. Yet despite initial successes, political interference in pricing and
client screening, and a lack of competition and skills led to instances of large losses and
subsequent bailouts. As a result, most MENA governments have shifted strategy towards trying
to improve enabling conditions for private suppliers to operate in this market.14

State banks also seem to play a key role in the provision of long-term investment finance, due to
the lack of long-term funding, pricing benchmarks, and risk management instruments such as
derivatives. Their role in providing investment finance seems particularly important in countries
where they hold a large market share and serve a large number of state-owned enterprises, like
Algeria, Libya, Syria, and Egypt. However, these are also the countries where the banking
system generates the largest ratios of NPLs to total loans (Figure 6), suggesting again that the
fulfillment of this mandate has not been effective, either because of excessive political
interference in investment decisions, internal operational deficiencies or both.

Lastly, there is no compelling evidence that state banks in non-GCC countries played a
significant counter-cyclical role in the recent financial crisis. The potential scope for counter-
cyclical lending would seem important in countries like Egypt, Morocco, and Tunisia, where
private banks lead financial intermediation but public banks still retain an important market share
and would have the means to mitigate an excessive contraction of credit. However, there is no
clear evidence that state banks in these three countries played this role during the crisis. As
shown in Table 8, in Egypt and Tunisia state banks lost market share as their credits grew at
lower rates than those of private banks in 2009. In Morocco state banks gained some market
share, as they kept expanding credit at higher rates than those of private banks. However, it is
questionable whether this was a countercyclical measure, as their credit growth rates also
declined significantly, and in any case the countercyclical impact of their credit activity was
modest at best.




14
     Hassler (2011).
                                                22
7. Summary of Findings and Policy Implications
     Main Findings
Our main objective in this paper was to examine recent trends in bank ownership in the Middle
East and North African region and the impact of bank ownership on bank performance. We
show ownership trends for the whole region but focus the statistical analysis of bank ownership
and performance on non-GCC countries, because state ownership is more prevalent in these
countries, and also because the distinctions between public and private ownership are more
relevant and consequential in these countries as well. (The stronger interlocking ownership
structures in the GCC tend to blur the differences between state and private ownership and make
statistical analysis less meaningful). We also examine the impact of bank listing on performance.
We analyze these relationships while controlling for bank size and balance sheet structures.

We show that the average market share of state banks remained low and stable in the GCC
region (around 28 percent of total assets) but declined considerably in the non-GCC region, from
56 percent of total assets in 2001 to 41 percent in 2008. State banks lost market share in most
non-GCC countries, but there is a group of countries where they still dominate financial
intermediation (Algeria, Libya and Syria). There is an intermediate group of countries where
state banks do not lead intermediation any longer, but still retain an important role, with shares
varying from about 15 to 50 percent (Egypt, Morocco, Tunisia, and Yemen). Finally, there is
group of countries where state banks do not exist or play a negligible role (Lebanon and Jordan).

The market share of foreign banks declined slightly in the GCC region, from 25 to 20 percent of
total assets between 2001 and 2008. By contrast, the market share of foreign banks increased
significantly in the non-GCC region, from 8 percent in 2001 to 20 percent in 2008. However,
most of this increase in market shares in the non-GCC region took place in recent years, and was
due mostly to entry of new foreign banks rather than the expansion of existing foreign banks.
Thus, foreign banks remain relatively small in many countries and do not seem to have
penetrated the main domestic credit markets to any significant extent.

The market share of listed banks increased in both the GCC and non-GCC regions. In the GCC
it is already very high at 90 percent of total assets. In the non-GCC region the share of listed


                                               23
banks increased significantly, from 29 percent to 56 percent of total banking assets. The bulk of
listed banks are private banks, but a small number of public banks were also listed in this period.

Regarding the main statistical findings, in line with research in other regions we find that state
banks are significantly less profitable than private banks in the non-GCC region. This result
seems to be due to a combination of policy mandates and operational inefficiencies. First, they
finance more the government than private banks, a result which may reflect a government
financing mandate and that contributes to lower net interest margins. Second, they have much
higher ratios of operating costs to assets controlling for their size and balance sheet structures.
This result is primarily due to a much higher ratio of employees to total assets which cannot be
explained by success in fulfilling an access mandate. Instead, state banks have not contributed to
greater bank penetration in remote areas, and their large employment base probably reflects
outdated banking technologies and restrictions to fire excessive staff. Finally, state banks tend to
generate much larger NPLs, which translate into larger loan loss provisions and lower
profitability. These results reflect the imposition of various development mandates on state
banks. These development mandates themselves may be justified, but they have not been
fulfilled effectively, due to political interference, lack of risk management capacity or both.

Foreign banks have slightly higher interest margins and profit ratios relative to private domestic
banks, but the differences are not significant. They have higher cost ratios and higher ratios of
employees to assets, even controlling for their much smaller size. They seem to be able to offset
these higher costs through higher interest and non-interest income, although many of these
results are not statistically significant. Moreover, we note that the entry and expansion of foreign
banks is a recent phenomenon in many non-GCC countries. Most of these banks remain small
and apparently unable to challenge the domestic banks in their main credit markets, either due to
the absence of a branch network or a weak financial infrastructure (especially weak credit
reporting systems). We note that it is probably premature to test the impact of foreign ownership
on bank performance in most non-GCC countries.

We also find that listed banks are more profitable than non-listed banks, controlling for their
smaller size and balance sheet structures. Listed banks tend to finance less the government,
generate higher net interest margins, and also generate more revenue from fees and commissions.

                                                 24
They have higher cost ratios due essentially to higher wages. This implies that they recruit and
maintain a more skilled workforce, required to develop more sophisticated and profitable
business lines. Therefore, they have higher cost ratios but this is more than compensated by
larger revenues and profits. They also tend to have lower ratios of loan loss provisions, which
reflect better credit allocation policies and asset quality, and also contribute to their profitability.
Listed banks are subject to stricter corporate governance and disclosure requirements, and these
factors could be driving their better performance. These results are consistent with a recent
survey of bank governance in MENA (OECD (2009)) that report the poor corporate governance
of family-owned banks, especially non-listed banks, and stresses the extent of lending to close
relatives and other connected parties that ultimately results in their poor financial performance.

      Policy Implications

As mentioned in the introductory sections of this paper, the arguments that have been put
forward to justify the continuing presence of state banks include market failures resulting from
asymmetric information and poor enforcement of contracts that restrict access to credit; the
provision of essential financial services in remote areas (where supply may be restricted by large
fixed costs); and the provision of counter-cyclical finance to prevent an excessive contraction of
credit during a financial crisis.

These arguments may justify the presence of state banks in some MENA countries. In particular,
the weak financial infrastructure in MENA (weak credit reporting systems, weak creditor rights)
is a major factor hindering access to finance in the region and provides a rationale for policy
interventions, including partial credit guarantees and the use of state banks. Ideally, these
institutional and legal weaknesses should be addressed head on, and policy interventions should
become more targeted and limited in volume, but in some countries it may take time to correct
these deficiencies, due to technical limitations, political limitations, or both. During this period,
state banks may make a contribution to access in areas such as SME finance, housing finance,
infrastructure and agriculture.

At the same time, this paper shows that state bank interventions may come with a significant
cost. These banks are much less profitable than private banks, due inter alia to more government
financing, excessive employment, larger costs, and lower asset quality. The profitability of state

                                                  25
banks may actually be inflated by interest accrual on NPLs and underprovisioning. Therefore,
the differences in profitability may be even larger. In some cases, the accumulated losses may
result in the insolvency of these institutions and a large bill for taxpayers. Some of these
deficiencies are the result of the mandates themselves, while some of them result from excessive
political interference and the poor governance structures and operational deficiencies of these
banks. The question that arises is how the potential benefits of state bank interventions can be
maximized and the potential costs minimized. The answer to this question needs to be highly
tailored to individual country conditions.

There is scope for reducing the market share of state banks in the countries where they still hold
very large shares and dominate financial intermediation, i.e., Algeria, Libya and Syria. The main
policy objectives that may justify the presence of state banks can be met with fewer state banks
holding a lower market share. Moreover, these objectives can probably be met more effectively
under these conditions, as these banks would operate in a more transparent and competitive
environment. Furthermore, it is easier to clarify policy mandates and monitor the performance of
state banks when they are fewer in number and there is a critical mass of private banks providing
a benchmark for performance in all the main credit markets. Note in this regard that Syria has
been making reasonable progress in reducing the share of state banks through entry of new
private banks, although the restructuring of the existing state banks remains a challenge.

There is also scope for clarifying the mandates, improving the governance structures, and
strengthening the operational efficiency of most if not all state banks in MENA. Achieving these
results and sustaining them over time is not a trivial task but should remain a key objective for
MENA policy-makers, if there is a decision to preserve a role for these banks.15 Although state
banks may not be able to achieve the same levels of profitability of private banks due to their
policy mandates, the results in this paper suggest that these banks could meet their main
development mandates more effectively if they were allowed to operate independently, and able
to reduce the excessive employment of low skilled personnel and recruit better trained staff, able
to implement better lending and risk management technologies.



15
  Rudolph (2010) and Scott (2007) review the experience of well managed state banks and the legal structures and
safeguards that must be put in place to ensure a reasonable operational and financial performance.
                                                       26
MENA countries that do not have state banks may not find it necessary to create new ones,
because they have been addressing their policy objectives through alternative and probably more
effective policy interventions. For example, Lebanon does not have state banks but has achieved
a relatively high share of SME lending by MENA standards through the use of partial credit
guarantee schemes.16 Note that these schemes have also played a counter-cyclical role in many
countries within and outside MENA, and this is one of the arguments that have been put forward
to justify the presence of state banks.17 Lastly, we note that credit guarantee schemes may also be
a preferable form of policy intervention because they provide an easier exit mechanism.

Foreign banks in MENA remain generally small but would probably expand faster and
contribute to more competitive and efficient financial systems if they had access to more and
better credit information. As noted above and in other studies, addressing the weakness on credit
reporting systems should remain one of the key items in the financial development agenda of
MENA countries. This would entail both upgrading public credit registries and, especially,
introducing private credit bureaus able to expand coverage and improve the depth of credit
information.18

Listed banks have performed better than non-listed banks, and this may be due to the stricter
governance standards and disclosure requirements imposed on these banks. Introducing listing
obligations for all licensed banks may be one option to improve the performance of family-
owned and non-listed banks, but the same outcome may be achieved by the bank regulator by
simply imposing and enforcing the higher governance standards and disclosure requirements on
all banks, listed and non-listed.19 In this regard, an interesting question is whether the listing of
public banks could contribute to improvements in their performance. Unfortunately, the listing
of MENA public banks is very recent and the sample too small to enable statistical testing, but




16
   Rocha, Farazi, Khouri, and Pearce (2010).
17
   The IFC (2010) provides some evidence of the use of credit guarantee schemes for counter-cyclical purposes.
18
   Maddedu (2010) and Anzoategui, Martinez Peria and Rocha (2010).
19
   The OECD (2009) provides an agenda for stronger bank governance standards in the MENA region.
                                                        27
this measure would probably only make sense in the context of a much broader package of
reforms changing their markets shares, roles, mandates, and governance structures.20



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the World - A New Database" World Bank Policy Research Working Paper Number 2588.
Barth, J., Caprio, G., and Levine, R., 2006. Rethinking Bank Regulation: Till Angels Govern,
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20
  We included an interactive dummy for public and listed banks, and the results indicated that public listed banks
perform better than non-listed ones. However, this result probably lacks statistical power due to very small sample
of public listed banks and the short period of listing, and could simply reflect a selection bias ­ the public banks that
were listed were the best performing.
                                                           28
Isik, I., Gunduz, L., and Omran, M., 2004. "Managerial and Scale Efficiency in the MENA
Banking: A Panel Study of the Jordanian Banking Sector".
Khwaja, A., and Mian A., 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision
in an Emerging Financial Market". The Quarterly Journal of Economics, 120(4), 1371-1411.
Kobeissi, N., and Sun, X., 2010. "Ownership Structure and Bank Performance: Evidence from
the Middle East and North Africa Region" Comparative Economic Studies 52 (3), 287-323.
Körner, T., and Schnabel, I., 2010. "Public Ownership of Banks and Economic Growth - The
Role of Heterogeneity" Working Paper Series of the Max Planck Institute for Research on
Collective Goods 2010_41.
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Levy-Yeiati, E., Micco, A., and Panizza, U., 2007. "A Reappraisal of State-Owned Banks"
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Matter?" Journal of Banking and Finance 31 (1), 219­41.
Micco, A., Panizza, U., and Yañez, M., 2004. "Bank Ownership and Performance" Inter-
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Olson, D., and Zoubi, T., 2010. "Efficiency and Bank Profitability in MENA Countries".
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Institutions" Policy Research Working Paper 4321, The World Bank, Washington, DC.


                                              29
Sufian, F., Mohamad, N., and Muhamed-Zulkhibri , A., 2008. "The Efficiency of Islamic
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                                            30
                      Figure 1: Share of State Banks in Total Assets (%), 1970-2005
State banks are defined as banks in which the government is a majority shareholder. Regional shares are calculated as simple country averages of
                                   the share of majority government-owned bank assets to total system assets.

   100
                  1970
     90
                  1985
     80           1995
     70           2002
     60           2005
     50
     40
     30
     20
     10
      0
             Sub Saharan          Latin America         East Asia and       East Europe and Middle East and               South Asia
               Africa                                      Pacific           Central Asia    North Africa

          Source: Levy-Yeiati et al. (2007). 2005 numbers are based on author's calculations. Data for MENA is from
          Bankscope and for other regions is from Barth et al. (2007). MENA countries include Egypt, Jordan, Lebanon,
          Morocco, Tunisia, and Yemen.


                Figure 2: Share of State Banks in Total Assets (%) in MENA, 2001-08




          Source: Author's calculations based on data from Bankscope. GCC countries are Bahrain, Kuwait,
          Oman, Qatar, Saudi Arabia and UAE. Non-GCC private-led banking systems include Egypt, Jordan,
          Lebanon, Morocco, Tunisia, and Yemen. Non-GCC state-led banking systems include Algeria, Libya,
          and Syria.
                                                                      31
   Figure 3: Share of State Banks in Total Assets in MENA Countries (%),
                        Averages 2001-03 and 2006-08




Source: Author's calculations based on data from Bankscope.


   Figure 4: Share of Foreign Banks in Total Assets (%) in MENA, 2001-08




Source: Author's calculations based on data from Bankscope. GCC countries are Bahrain, Kuwait,
Oman, Qatar, Saudi Arabia and UAE. Non-GCC private-led banking systems include Egypt, Jordan,
Lebanon, Morocco, Tunisia, and Yemen. Non-GCC state-led banking systems include Algeria, Libya,
and Syria.


                                                   32
    Figure 5: Share of Listed Banks in Total Assets (%) in MENA, 2001-08




Source: Author's calculations based on data from Bankscope. GCC countries are Bahrain, Kuwait,
Oman, Qatar, Saudi Arabia and UAE. Non-GCC private-led banking systems include Egypt, Jordan,
Lebanon, Morocco, Tunisia, and Yemen. Non-GCC state-led banking systems include Algeria, Libya,
and Syria.
                       Figure 6: Non-GCC countries
Share of State Ownership in the Banking Sector and Non-Performing Loans, 2




 Source: % of State Ownership is based on author's calculations from data obtained from Bankscope. NPL
 data is obtained from the IMF's Regional Economic Outlook: Middle East and Central Asia, October 2010.




                                                  33
Table 1: Asset Share of Banks in MENA, by Ownership and Other Categories, 2001-2008
  State (private) banks are defined as banks in which the government (private sector) is a majority shareholder. Foreign (Domestic)
  banks are defined as banks in which foreign (domestic) entities are majority shareholders. Listed banks are defined as banks that are
  listed in a stock market. Shares are calculated as simple country averages. GCC countries are Bahrain, Kuwait, Oman, Qatar, Saudi
  Arabia and UAE. Non GCC private-led banking systems include Egypt, Jordan, Lebanon, Morocco, Tunisia, and Yemen. Non-GCC
  state-led banking systems include Algeria, Libya, and Syria.


MENA                                                        2001       2002      2003       2004      2005       2006      2007       2008
State Banks                                                 41%        39%       37%        38%       36%        34%       34%        33%
Private Banks                                               59%        61%       63%        62%       64%        66%       66%        67%
      Private Domestic                                      42%        43%       44%        44%       46%        47%       47%        47%
      Private Foreign                                       18%        18%       19%        18%       18%        20%       19%        20%
            Private Foreign International                    8%         8%        8%         8%        8%         9%        9%        10%
            Private Foreign Regional                        10%        10%       10%        10%       10%        10%       10%        10%
Listed Banks                                                56%        58%       64%        66%       70%        75%       76%        78%
        Listed Private Banks                                49%        50%       53%        53%       55%        60%       60%        61%
        Listed State Banks                                   7%         8%       11%        13%       15%        15%       16%        17%
GCC                                                         2001       2002      2003       2004      2005       2006      2007       2008
State Banks                                                 28%        28%       28%        27%       28%        27%       28%        28%
Private Banks                                               72%        72%       72%        73%       72%        73%       72%        72%
      Private Domestic                                      47%        46%       47%        49%       48%        51%       52%        52%
      Private Foreign                                       26%        26%       25%        24%       23%        22%       20%        20%
            Private Foreign International                   12%        12%       12%        11%       10%         9%        8%         9%
            Private Foreign Regional                        13%        14%       13%        13%       13%        13%       12%        11%
Listed Banks                                                79%        79%       84%        85%       86%        89%       89%        90%
        Listed Private Banks                                66%        65%       67%        68%       67%        69%       68%        68%
        Listed State Banks                                  13%        14%       17%        17%       20%        20%       21%        22%
Non-GCC                                                     2001       2002      2003       2004      2005       2006      2007       2008
State Banks                                                 56%        53%       50%        52%       47%        43%       43%        41%
Private Banks                                               44%        47%       50%        48%       53%        57%       57%        59%
      Private Domestic                                      36%        38%       40%        38%       42%        41%       38%        39%
      Private Foreign                                        8%         9%       10%        10%       11%        16%       19%        20%
            Private Foreign International                    3%         3%        4%         4%        5%         9%       12%        12%
            Private Foreign Regional                         5%         6%        6%         6%        6%         7%        7%         8%
Listed Banks                                                29%        31%       37%        41%       45%        52%       54%        56%
        Listed Private Banks                                29%        31%       33%        32%       38%        45%       46%        48%
        Listed State Banks                                   0%         0%        4%         8%        7%         7%        7%         7%




                                                                    34
Table 1 (continued): Asset Share of Banks in MENA, by Ownership and Other Categories,
                                       2001-2008
  State (private) banks are defined as banks in which the government (private sector) is a majority shareholder. Foreign (Domestic)
  banks are defined as banks in which foreign (domestic) entities are majority shareholders. Listed banks are defined as banks that are
  listed in a stock market. Shares are calculated as simple country averages. GCC countries are Bahrain, Kuwait, Oman, Qatar, Saudi
  Arabia and UAE. Non GCC private-led banking systems are Egypt, Jordan, Lebanon, Morocco, Tunisia, and Yemen. Non-GCC state-
  led banking systems include Algeria, Libya, and Syria.


Non-GCC Private-led                                      2001       2002       2003       2004       2005       2006        2007      2008
State Banks                                              42%        40%        39%        37%        35%        30%         29%       29%
Private Banks                                            58%        60%        61%        63%        65%        70%         71%       71%
      Private Domestic                                   47%        49%        49%        51%        52%        52%         49%       48%
      Private Foreign                                    10%        11%        12%        12%        13%        18%         22%       22%
            Private Foreign International                 4%         4%         5%         5%         6%        11%         15%       14%
            Private Foreign Regional                      7%         7%         7%         7%         7%         7%          7%        8%
Listed Banks                                             39%        39%        46%        53%        55%        65%         67%       66%
        Listed Private Banks                             39%        39%        41%        42%        46%        56%         58%       58%
        Listed State Banks                                0%         0%         5%        11%         9%         9%          8%        8%
Non-GCC State-led                                        2001       2002       2003       2004       2005       2006        2007      2008
State Banks                                              98%        98%        97%        96%        92%        90%         90%       86%
Private Banks                                             2%         2%         3%         4%         8%        10%         10%       14%
      Private Domestic                                    1%         1%         1%         1%         1%         2%          2%        2%
      Private Foreign                                     1%         1%         2%         3%         6%         8%          9%       13%
            Private Foreign International                 0%         0%         1%         1%         2%         3%          3%        4%
            Private Foreign Regional                      1%         1%         1%         2%         4%         6%          6%        9%
Listed Banks                                              0%         1%         2%         3%         5%         6%         12%       14%
        Listed Private Banks                              0%         1%         2%         3%         5%         6%          7%       11%
        Listed State Banks                                                                                                   5%        3%


              Table 2: Asset Share of State Banks in Non-GCC Countries, 2001-2008
                          2001           2002          2003           2004           2005          2006           2007          2008
  Algeria                  97%            98%           96%           95%            92%           91%            93%           90%
  Egypt                    79%            77%           77%           75%            72%           58%            55%           57%
  Jordan                   0%              0%            0%            0%             0%            0%             0%            0%
  Lebanon                  0%              0%            0%            0%             0%            0%             0%            0%
  Libya                    95%            92%           93%           97%            95%           95%            94%           94%
  Morocco                  79%            81%           82%           80%            44%           43%            38%           37%
  Syria                   100%           100%          100%           97%            90%           82%            74%           69%
  Tunisia                                               53%           46%            44%           44%            42%           43%
  Yemen                    31%           23%            20%           17%            16%           15%            14%           13%




                                                                    35
                                               Table 3: Definition and sources of variables used in regression analysis
               Variable                                                                  Definition                                                                      Source
ROA                                     Return on average asset is the return generated from the assets financed by the bank.                          Bankscope
ROE                                     Return on average equity is measure of the return on shareholder funds.                                        Bankscope
Net Interest Margin                     This ratio is the net interest income expressed as a percentage of total assets.                               Bankscope
Interest Income to Assets                Interest income on loans + other interest income + dividend income as a percentage of assets.                 Bankscope
Interest Expenses to Assets              Interest expense on customer deposits+ other interest expense + preferred dividends paid & declared d as      Bankscope
                                        a percentage of assets.
Total Securities to Assets              Loans and advances to banks + trading securities + derivatives + available for sale securities + held to       Bankscope
                                        maturity securities + at-equity investments + other securities as a percentage of assets.
Overheads to Assets                     Personnel expenses + other operating expenses as a percentage of assets.                                       Bankscope
Personnel Expenses to Assets            Wages, salaries, social security costs, pension costs and other staff costs, including expensing of staff      Bankscope
                                        stock options as a percentage of assets.
Employment to Assets                    Number of employees as a percentage of assets.                                                                 Bankscope and Union of Arab Banks Database
Wage                                    Personnel expenses (or overheads) as a percentage of employees.                                                Bankscope
Loan Loss Provisions to Gross Loans     Loan impairment charges as a percentage of gross loans.                                                        Bankscope
Dummy Public Ownership                  This is equal to 1 if bank is majority government owned.                                                       Bankscope, Bankersalmanac, Union of Arab
                                                                                                                                                       Banks Database and banks' websites.
Dummy Foreign Ownership                 This is equal to 1 if bank is majority foreign owned.                                                          Bankscope, Bankersalmanac, Union of Arab
                                                                                                                                                       Banks Database and banks' websites.
Dummy Listed                            This is equal to 1 if bank is listed on a stock market.                                                        Bankscope, Bloomberg and websites of
                                                                                                                                                       national stock markets.
Lag Total Assets (Log)                  One period lag of total earning assets + cash and due from banks + foreclosed real estate + fixed assets +     Bankscope
                                        goodwill + other intangibles + current tax assets + deferred tax + discontinued operations + other assets.
Non-Interest Income to Assets           Net gains (losses) on trading & derivatives + net gains (losses) on other securities + net gains (losses) on   Bankscope
                                        assets at FV through income statement + net insurance income + net fees and commissions + other
                                        operating income as a percentage of assets.
Deposits to Assets                      Total customer deposits + deposits from banks + Other deposits and short-term borrowings as a                  Bankscope
                                        percentage of assets.
Loans to Assets                         Residential mortgage loans + other mortgage loans + other consumer/retail loans + corporate &                  Bankscope
                                        commercial loans + other loans - reserve against possible losses on impaired or non performing loans as
                                        a percentage of assets.
Asset Share of State Banks              Share of state ownership in the banking sector.                                                                Bankscope, Bankersalmanac, Union of Arab
                                                                                                                                                       Banks Database and banks' websites.
Log GDP per capita                      Logarithm of GDP per capita.                                                                                   World Bank's World Development Indicators
Urban Population % of           Total   Share of population in the urban areas to total population in a country.                                       World Bank's World Development Indicators
Population 100,000 Adults
Branches per                            Number of branches of commercial banks per capita.                                                             IMF
Deposit Accounts per 1,000 Adults       Number of deposit accounts with commercial banks per capita.                                                   IMF

                                                                                                  36
                                        Table 4: Correlation Matrix of Variables used in Regression Analysis
                                                     * significant at 10%; ** significant at 5%, *** significant at 1% NEEDS
                                                                            Net                                   Total
                                                                          Interest    Interest      Interest   Securities to                  Personal                       Wage
                                                                          Margin      Income       Expenses     Assets (All      Overheads    Expenses       Employment      (Personal
                                                   ROA          ROE       (Assets)   to Assets     to Assets    Countries)        to Assets   to Assets       to Assets      Expense)
ROE                                              0.73***           1
Net Interest Margin (Assets)                     0.41***      0.29***        1
Interest Income to Assets                        0.15***      0.13***     0.26***         1
Interest Expenses to Assets                     -0.16***        -0.05        -        0.80***           1
Total Securities to Assets (All Countries)         0.003         0.04     0.28***
                                                                           -0.02      0.52***      0.52***            1
Overheads to Assets                              -0.10**     -0.16***     0.37***     0.10***      -0.10***       -0.09**               1
Personal Expenses to Assets                      -0.10**     -0.28***      0.3***      0.10**       -0.10**      -0.17***           0.83***          1
Employment to Assets                               -0.01      -0.11**      0.12**       0.05         -0.02        -0.13**           0.29***      0.5***            1
Wage (Personal Expense)                             0.04         0.08     -0.18**     0.31***      0.29***        0.35***             -0.04        0.03       -0.68***              1
Wage (Overheads)                                    0.02         0.05       -0.01       0.11*         0.06         0.24*              0.12*      -0.10*         -0.69*           0.93*
Loan Loss Provisions to Gross Loans             -0.27***     -0.19***        0.03       0.03          0.05          0.03             -0.005        0.04        0.34***        -0.30***
Dummy Public Ownership                          -0.12***     -0.11***       -0.01    -0.11***      -0.13***         0.03           -0.20***       -0.02        0.19***        -0.23***
Dummy Foreign Ownership                             0.06         0.06        0.03    -0.14***      -0.21***      -0.31***           0.22***     0.16***        0.15***        -0.17***
Dummy Listed                                     0.15***       0.09**       -0.06      -0.07*      -0.16***      -0.29***           0.20***     0.23***         0.080*            0.01
Lag Total Assets (Log)                            -0.001         0.05       -0.05       0.04          0.03        0.17***          -0.30***    -0.23***       -0.34***         0.38***
Non-Interest Income to Assets                    0.21***      0.12***        0.03    -0.14***      -0.15***      -0.31***           0.38***     0.37***        0.40***        -0.16***
Deposits to Assets                                  0.03      0.13***          -      0.29***      0.49***        0.36***          -0.26***    -0.14***         -0.09*          0.12**
Loans to Assets                                    0.07*        -0.04     0.27***
                                                                          0.19***       0.02       -0.10***      -0.46***           0.23***     0.40***        0.24***        -0.23***
Public Ownership*Listed                            -0.01        -0.02      0.05       -0.08**      -0.11***       -0.09**            0.1***     0.15***          0.01            -0.03


                                                             Loan Loss
                                                             Provisions       Dummy            Dummy                                          Non-Interest
                                                  Wage        to Gross        Public           Foreign         Dummy            Lag Total      Income to       Deposits to    Loans to
                                              (Overheads)      Loans         Ownership        Ownership         Listed         Assets (Log)      Assets          Assets        Assets
 Wage (Overheads)                                    1
 Loan Loss Provisions to Gross Loans            -0.41***            1
 Dummy Public Ownership                         -0.22***        0.21***             1
 Dummy Foreign Ownership                        -0.14***          0.007        -0.34***              1
 Dummy Listed                                      0.04        -0.20***        -0.27***           0.41***           1
 Lag Total Assets (Log)                          0.33***       -0.15***         0.48***          -0.24***        0.09**             1
 Non-Interest Income to Assets                  -0.23***        0.24***         -0.08**           0.25***       0.31***         -0.21***            1
 Deposits to Assets                                0.01           -0.05         -0.08**          -0.16***      -0.12***          0.13***        -0.29***            1
 Loans to Assets                                -0.18***         -0.08*          0.07**           0.15***       0.41***           0.07*          0.35***        -0.17***          1




                                                                                      37
       Table 5A: T and Rank Tests for Private vs. Public Banks in Non-GCC Region
    Tests are conducted on annual bank-level data for the period 2001-08. Column 5 shows the p-value of a t-test which tests for the
    equality of means of the groups (allowing for inequality in variance). Column 6 shows the p-value of the Wilcoxon ranksum test
    which tests whether the groups are samples from populations with the same distribution. Non-GCC countries are Egypt, Jordan,
    Lebanon, Morocco, Tunisia, and Yemen. State-led countries are Algeria, Libya, and Syria.

Variable                                                  Private          Public         P value for t          P Value for Rank
Total Assets                                              2.1E+06         8.2E+06             0.00                     0.00
ROA                                                         0.92            0.52              0.00                     0.00
ROE                                                        11.16            7.57              0.01                     0.00
Net Interest Margin (Total Assets)                          2.27            2.25              0.82                     0.89
Total Interest Income to Assets                             5.85            5.18              0.00                     0.00
Total Interest Expenses to Assets                           3.59            2.98              0.00                     0.00
Non-Interest Income to Assets                               1.35            1.14              0.02                     0.02
Securities to Assets (All Countries)                       19.56           20.74              0.40                     0.48
Securities to Assets (Excluding Lebanon)                   13.88           20.23              0.00                     0.00
OH Costs to Assets                                          2.00            1.58              0.00                     0.00
Personnel Expenses to Assets                                1.05            1.02              0.64                     0.83
Employees to Assets                                         0.05            0.07              0.00                     0.00
Wage (Personal Expense)                                    25.60           17.25              0.00                     0.00
Wage (Overheads)                                           45.32           30.41              0.00                     0.00
Loan Loss Provisions to Gross Loans                         1.59            2.88              0.00                     0.00

Table 5B: T and Rank Tests for Domestic (Private) vs. Foreign Banks in Non-GCC Region
    Tests are conducted on annual bank-level data for the period 2001-08. Column 5 shows the p-value of a t-test which tests for the
    equality of means of the groups (allowing for inequality in variance). Column 6 shows the p-value of the Wilcoxon ranksum test
    which tests whether the groups are samples from populations with the same distribution. Non-GCC countries are Egypt, Jordan,
    Lebanon, Morocco, Tunisia, and Yemen. State-led countries are Algeria, Libya, and Syria.

 Variable                                                 Domestic         Foreign         P value for t         P Value for Rank
 Total Assets                                             2.3E+06          1.4E+06             0.00                    0.04
 ROA                                                        0.89             0.97              0.51                    0.09
 ROE                                                       11.10            11.54              0.71                    0.88
 Net Interest Margin (Total Assets)                         2.25             2.30              0.55                    0.34
 Total Interest Income to Assets                            6.22             5.30              0.00                    0.00
 Total Interest Expenses to Assets                          4.01             3.00              0.00                    0.00
 Non-Interest Income to Assets                              1.17             1.62              0.00                    0.00
 Securities to Assets (All Countries)                      23.54            13.51              0.00                    0.00
 Securities to Assets (Excluding Lebanon)                  16.70            11.85              0.00                    0.00
 OH Costs to Assets                                         1.86             2.24              0.00                    0.00
 Personnel Expenses to Assets                               1.01             1.19              0.00                    0.00
 Employees to Assets                                        0.05             0.06              0.00                    0.00
 Wage (Personal Expense)                                   27.44            21.29              0.00                    0.00
 Wage (Overheads)                                          49.56            38.24              0.00                    0.00
 Loan Loss Provisions to Gross Loans                        0.58             0.77              0.01                    0.00




                                                                   38
   Table 5C: T and Rank Tests for Listed vs. Non-Listed Banks in Non-GCC Region
  Tests are conducted on annual bank-level data for the period 2001-08. Column 5 shows the p-value of a t-test which tests for the
  equality of means of the groups (allowing for inequality in variance). Column 6 shows the p-value of the Wilcoxon ranksum test
  which tests whether the groups are samples from populations with the same distribution. Non-GCC countries are Egypt, Jordan,
  Lebanon, Morocco, Tunisia, and Yemen. State-led countries are Algeria, Libya, and Syria.

Variable                                                  Listed         Non-listed        P value for t       P Value for Rank
Total Assets                                             2.9E+06          3.3E+06              0.20                  0.01
ROA                                                        1.03             0.64               0.00                  0.00
ROE                                                       11.55             9.32               0.02                  0.00
Net Interest Margin (Total Assets)                         2.32             2.21               0.14                  0.03
Total Interest Income to Assets                            5.57             5.93               0.01                  0.00
Total Interest Expenses to Assets                          3.23             3.77               0.00                  0.00
Non-Interest Income to Assets                              1.57             1.03               0.00                  0.00
Securities to Assets (All Countries)                      40.01            31.70               0.00                  0.00
Securities to Assets (Excluding Lebanon)                  15.86            23.94               0.00                  0.00
OH Costs to Assets                                         2.09             1.76               0.00                  0.00
Personnel Expenses to Assets                               1.16             0.93               0.00                  0.00
Employees to Assets                                        0.06             0.05               0.09                  0.07
Wage (Personal Expense)                                   24.76            24.55               0.87                  1.00
Wage (Overheads)                                          44.14            42.10               0.37                  0.52
Loan Loss Provisions to Gross Loans                        1.37             2.28               0.00                  0.00




                                                                 39
                Table 6A: Bank Ownership, Profitability, Interest Margin and Securities (Unweighted)
        Regressions are estimated via OLS at bank level for the year 2001 to 2008. Robust t statistics in brackets and bank level clustered t statistics in parenthesis.
                      All regressions control for time and country dummies. ***, ** and * represent significance at 1, 5 and 10% level respectively.

                                                1                2                 3                    4              5                  6                        7
                                                                              Net Interest           Interest       Interest       Total Securities        Total Securities to
                                                                             Margin (Total           Income        Expenses         to Assets (All         Assets (Excluding
                                              ROA             ROE               Assets)             to Assets      to Assets         Countries)                Lebanon)
Dummy Public Ownership                        -0.513          -6.731              -0.061               0.35           0.067               5.304                     6.579
                                           [2.86]***        [3.02]***             [0.48]              [1.38]          [0.41]            [2.55]**                 [2.98]***
                                             (1.76)*         (2.02)**             (0.26)              (0.67)          (0.22)              (1.18)                    (1.32)
Dummy Foreign Ownership                        0.04            1.333               0.107              -0.105          -0.381              -2.337                     -3.71
                                              [0.28]           [0.83]             [1.20]              [0.67]       [3.39]***            [2.28]**                 [3.48]***
                                              (0.18)           (0.53)             (0.65)              (0.37)         (1.70)*              (1.18)                   (1.73)*
Dummy Listed                                  0.269            3.654               0.241              0.038           -0.221              -3.317                    -1.915
                                             [1.82]*        [2.70]***           [3.01]***             [0.27]         [1.96]*           [2.62]***                    [1.47]
                                              (1.39)         (1.99)**            (1.79)*              (0.16)          (1.19)              (1.57)                    (0.91)
Lag Total Assets (Log)                        0.047            1.457              -0.025              -0.026          0.046               1.521                      0.79
                                              [1.08]        [2.60]***             [0.77]              [0.44]          [1.20]           [3.50]***                    [1.41]
                                              (0.70)          (1.91)*             (0.45)              (0.28)          (0.79)             (1.92)*                    (0.74)
Non-Interest Income to Assets                 0.296            2.197              -0.219              -0.291          -0.158              -1.248                    -0.706
                                           [4.11]***        [3.24]***           [4.13]***           [2.76]***       [2.51]**            [2.01]**                    [1.10]
                                           (3.16)***        (2.63)***           (2.74)***            (2.10)**        (1.79)*              (1.38)                    (0.76)
Deposits to Assets                            -0.014           0.151              -0.027               -0.01          0.025                0.02                     0.133
                                            [2.21]**           [1.64]           [6.00]***             [1.44]       [4.07]***              [0.36]                  [2.33]**
                                             (1.78)*           (1.44)           (3.68)***             (0.91)        (2.54)**              (0.20)                    (1.25)
Loans to Assets                               -0.008          -0.119               0.002              0.016           0.022
                                            [2.34]**        [2.73]***             [0.67]             [2.21]**      [5.73]***
                                              (1.53)          (1.94)*             (0.43)              (1.31)       (3.59)***
Observations                                  518              516                  557                573            563                 573                       420
R-squared                                     0.18             0.15                 0.41               0.43           0.73                0.49                      0.42
Number of Countries                             9               9                    9                  9               9                   9                         8
Number of Banks                                118             119                  119                120             118                 117                       83




                                                                                      40
                Table 6B: Bank Ownership, Costs, Employment, Wages and Provisions (Unweighted)
       Regressions are estimated via OLS at bank level for the year 2001 to 2008. Robust t statistics in brackets and bank level clustered t statistics in parenthesis.
                     All regressions control for time and country dummies. ***, ** and * represent significance at 1, 5 and 10% level respectively.

                                                   8                      9                     10                    11                    12                    13
                                                                                                                                                             Loan Loss
                                             Overheads         Personal Expenses          Employment          Wage (Personal               Wage             Provisions to
                                              to Assets            to Assets                to Assets           Expense)              (Overheads)           Gross Loans
Dummy Public Ownership                           0.364                  0.24                   0.035              -9.161                 -18.476                 1.26
                                             [3.61]***             [3.29]***                [7.17]***           [5.84]***               [5.79]***            [2.84]***
                                               (2.17)**              (1.88)*                (4.38)***           (3.58)***               (4.40)***             (2.12)**
Dummy Foreign Ownership                          0.268                 0.194                   0.008              -1.527                     -2.8              -0.057
                                             [3.51]***             [3.43]***                 [2.01]**             [1.45]                   [1.29]              [0.27]
                                               (2.05)**              (1.80)*                   (0.98)             (0.80)                   (0.73)              (0.19)
Dummy Listed                                      0.25                 0.036                   0.004               1.729                   7.038                -0.32
                                             [3.05]***                [0.61]                   [1.15]             [1.11]                 [2.56]**              [1.54]
                                                (1.95)*               (0.42)                   (0.72)             (0.70)                  (1.89)*              (1.25)
Lag Total Assets (Log)                           -0.186               -0.117                   -0.01               4.336                   8.737               -0.031
                                             [5.80]***             [5.39]***               [10.09]***           [9.45]***              [10.02]***              [0.39]
                                             (3.75)***             (3.29)***                (5.90)***           (5.57)***               (7.09)***              (0.36)
Non-Interest Income to Assets                    0.275                 0.118                   0.007               2.189                    1.76                 0.58
                                             [6.02]***             [3.47]***                 [2.54]**           [2.81]***                  [1.18]            [3.25]***
                                             (5.00)***              (2.46)**                  (1.96)*           (2.99)***                  (1.16)            (2.79)***
Deposits to Assets                               -0.012              -0.0004                  0.0002              -0.217                    -0.69               0.044
                                                [1.82]*               [0.08]                   [1.15]           [3.97]***               [4.85]***            [3.45]***
                                                 (1.53)               (0.07)                   (0.73)            (2.30)**               (3.37)***            (2.98)***
Loans to Assets                                  0.006                 0.004                  0.0002               0.086                    0.02               -0.017
                                               [2.07]**              [1.81]*                  [1.82]*            [2.56]**                  [0.28]             [2.03]**
                                                 (1.45)               (1.23)                   (1.02)             (1.44)                   (0.20)              (1.63)
Observations                                      575                    384                    387                   270                  384                    489
R-squared                                         0.4                    0.5                   0.55                  0.71                  0.66                   0.38
Number of Countries                                9                      9                     9                     9                     9                      9
Number of Banks                                   120                    92                     102                   77                   104                    115




                                                                                     41
            Table 7: Government Ownership of Banking Sector and Access to Finance
                Regressions are estimated via OLS at country level for the year 2001 to 2009. Robust t statistics are in brackets.
                                    ***, ** and * represent significance at 1, 5 and 10% level respectively.


                                                          1              2               3               4               5                 6
                                                                               Deposit Accounts per 1,000 Adults
Asset Share of State Banks                             -2.87           -2.3         -5.44      -4.34       -2.72                         -2.36
                                                      [2.21]**      [6.40]***       [4.35]***       [8.43]***       [14.13]***       [11.35]***
Log GDP per capita                                                   176.35          392.37                           593.96             556.87
                                                                      [1.24]        [4.72]***                        [9.85]***       [7.39]***
Urban population % of Total Population                                 6.12            7.28                             2.1               1.21
                                                                      [1.05]         [1.88]*                           [0.47]            [0.27]
Branches per 100,000 Adults                                                          -22.38                                               7.12
                                                                                    [2.79]***                                            [1.91]*
Country Dummies                                          No             No              No             Yes              Yes               Yes
Observations                                             31             31              31              31              31                31
R-squared                                               0.13           0.91            0.94            0.99              1                 1
Countries                                                 9             9                9              9                9                 9



                               Table 8: Credit Growth of Public and Private Banks
                            Average growth rates for government owned banks and private banks for 2007 to 2009.


                                                                                              2007              2008             2009
        Egypt             Share of Public Banks Credit to Total Credit                        67%               63%              62%
                          Total Credit Growth                                                 20%               17%               2%
                          Private Banks Credit Growth                                         49%               33%               4%
                          Public Banks Credit Growth                                           9%                9%               1%
        Morocco           Share of Public Banks Credit to Total Credit                        43%               44%              46%
                          Total Credit Growth                                                 45%               20%              15%
                          Private Banks Credit Growth                                         40%               16%              13%
                          Public Banks Credit Growth                                          51%               26%              19%
        Tunisia           Share of Public Banks Credit to Total Credit                        48%               49%              46%
                          Total Credit Growth                                                 15%                6%               7%
                          Private Banks Credit Growth                                         14%                5%              14%
                          Public Banks Credit Growth                                          17%                7%             -0.04%




                                                                       42
                             Appendix A: Number of Banks in MENA, 2001-2008

MENA                                          2001   2002   2003   2004   2005   2006   2007   2008
Total Banks                                   128    135    144    151    158    169    183    172
State Banks                                    25     24     27     28     27     26     28     26
Private Banks                                 103    111    117    123    131    143    155    146
      Private Domestic                         69     73     76     80     83     89     96     86
      Private Foreign                          34     38     41     43     48     54     59     60
              Private Foreign International    11     11     15     14     15     18     20     19
              Private Foreign Regional         23     27     26     29     33     36     39     41
Listed Banks                                   73     77     93     95    103    116    126    125
       Listed Private Banks                    66     70     82     83     91    104    113    112
       Listed State Banks                      7      7      11     12     12     12     13     13
GCC                                           2001   2002   2003   2004   2005   2006   2007   2008
Total Banks                                    48     51     52     54     57     61     66     66
State Banks                                    9      10     10     10     10     10     10     10
Private Banks                                  39     41     42     44     47     51     56     56
      Private Domestic                         27     28     29     31     33     37     41     41
      Private Foreign                          12     13     13     13     14     14     15     15
              Private Foreign International    3      3      3      3      3      3      3      3
              Private Foreign Regional         9      10     10     10     11     11     12     12
Listed Banks                                   39     41     47     49     51     56     59     60
       Listed Private Banks                    32     34     39     41     43     48     51     52
       Listed State Banks                      7      7      8      8      8      8      8      8
Non-GCC                                       2001   2002   2003   2004   2005   2006   2007   2008
Total Banks                                    80     84     92     97    101    108    117    106
State Banks                                    16     14     17     18     17     16     18     16
Private Banks                                  64     70     75     79     84     92     99     90
      Private Domestic                         42     45     47     49     50     52     55     45
      Private Foreign                          22     25     28     30     34     40     44     45
              Private Foreign International    8      8      12     11     12     15     17     16
              Private Foreign Regional         14     17     16     19     22     25     27     29
Listed Banks                                   34     36     46     46     52     60     67     65
       Listed Private Banks                    34     36     43     42     48     56     62     60
       Listed State Banks                      0      0      3      4      4      4      5      5

                                                     43
                Appendix A (continued): Number of Banks in MENA, 2001-2008

Non-GCC Private-led                          2001     2002   2003    2004    2005     2006   2007    2008
Total Banks                                   68       74     80      78      80       84     90     82
State Banks                                       7     7     10      10      10        9     10     10
Private Banks                                 61       67     70      68      70       75     80     72
     Private Domestic                         41       44     46      47      47       49     51     43
     Private Foreign                          20       23     24      21      23       26     29     29
           Private Foreign International          8     8     9       8           9    12     14     13
           Private Foreign Regional           12       15     15      13      14       14     15     16
Listed Banks                                  33       35     42      40      44       51     55     52
       Listed Private Banks                   33       35     39      36      40       47     51     48
       Listed State Banks                         0     0     3       4           4     4     4       4
Non-GCC Sate-led                             2001     2002   2003    2004    2005     2006   2007    2008
Total Banks                                   12       10     12      19      21       24     27     24
State Banks                                       9     7     7       8           7     7     8       6
Private Banks                                     3     3     5       11      14       17     19     18
     Private Domestic                             1     1     1       2           3     3     4       2
     Private Foreign                              2     2     4       9       11       14     15     16
           Private Foreign International          0     0     3       3           3     3     3       3
           Private Foreign Regional               2     2     1       6           8    11     12     13
Listed Banks                                      1     1     4       6           8     9     12     13
       Listed Private Banks                       1     1     4       6           8     9     11     12
       Listed State Banks                         0     0     0       0           0     0     1       1

                Appendix B: Number of Banks in the Non-GCC Region, 2001-2008

                   2001       2002         2003       2004    2005         2006       2007    2008
    Algeria          6         6             7         11      10           12         12      11
    Egypt           21         21           21         21      21           22         23      22
    Jordan          10         10           10         10      11           11         11      10
    Lebanon         24         27           27         24      24           27         31      26
    Libya            5         3             4          4       5            5          5       3
    Morocco          3         3             3          3       4            4          6       6
    Syria            1         1             1          4       6            7         10      10
    Tunisia          4         5            11         12      12           12         12      11
    Yemen            6         8             8          8       8            8          7       7


                                                      44
                Appendix C: Bank Ownership, Profitability, Interest Margin and Securities (Weighted)
      Regressions are estimated via OLS at bank level for the year 2001 to 2008. Robust t statistics in brackets and bank level clustered t statistics in parenthesis.
      All regressions control for time and country dummies. Inverse of number of banks in a country in a given year is used as weights. ***, ** and * represent
                                                            significance at 1, 5 and 10% level respectively


                                                       1                       2                     3                     4                 5                     6
                                                                                              Net Interest             Interest          Interest
                                                                                             Margin (Total            Income to        Expenses to        Total Securities
                                                      ROA                    ROE                 Assets)                Assets            Assets             to Assets
Dummy Public Ownership                               -0.281                 -4.844                0.113                 0.622              0.144                6.688
                                                    [1.88]*                [2.50]**              [0.77]                [2.26]**           [0.91]             [2.95]***
                                                     (1.10)                 (1.65)               (0.44)                 (1.14)            (0.50)                (1.35)
Dummy Foreign Ownership                              -0.026                 -0.069               -0.025                 -0.156            -0.372                -3.468
                                                     [0.18]                 [0.04]               [0.22]                 [0.79]          [2.78]***            [3.08]***
                                                     (0.11)                 (0.03)               (0.13)                 (0.42)            (1.39)                (1.54)
Dummy Listed                                         0.245                   4.319                0.291                 0.206              -0.05                -1.503
                                                    [1.72]*                [2.54]**            [2.72]***                [1.19]            [0.46]                [0.99]
                                                     (1.32)                (2.07)**             (2.37)**                (0.82)            (0.28)                (0.74)
Lag Total Assets (Log)                               -0.035                  0.093               -0.052                 -0.074             0.032                1.438
                                                     [0.68]                 [0.10]               [1.33]                 [1.08]            [0.78]             [2.88]***
                                                     (0.50)                 (0.09)               (0.85)                 (0.65)            (0.49)                (1.48)
Non-Interest Income to Assets                        0.265                    2.04               -0.271                 -0.386            -0.221                -1.294
                                                  [3.86]***               [2.78]***            [4.54]***              [3.35]***         [3.18]***              [1.81]*
                                                  (3.01)***                (2.22)**            (2.93)***               (2.53)**          (2.31)**               (1.24)
Deposits to Assets                                   -0.007                  0.291               -0.021                 0.001              0.031                0.134
                                                     [0.95]                [2.19]**            [4.01]***                [0.11]          [4.80]***             [2.20]**
                                                     (0.81)                (2.03)**            (2.87)***                (0.07)          (2.84)***               (1.37)
Loans to Assets                                      -0.008                 -0.069                0.002                 0.011              0.018
                                                   [2.09]**                 [1.45]               [0.51]                 [1.32]          [4.31]***
                                                     (1.40)                 (1.17)               (0.32)                 (0.78)          (3.06)***
Observations                                          517                     515                  556                   572                562                  572
R-squared                                              0.2                    0.21                 0.46                  0.47               0.72                 0.48
Number of Countries                                     9                      9                    9                      9                 9                    9
Number of Banks                                       118                     119                  117                   120                118                  117


                                                                                    45
        Appendix C (continued): Bank Ownership, Costs, Employment, Wages and Provisions (Weighted)
       Regressions are estimated via OLS at bank level for the year 2001 to 2008. Robust t statistics in brackets and bank level clustered t statistics in parenthesis. All
          regressions control for time and country dummies. Inverse of number of banks in a country in a given year is used as weights. ***, ** and * represent
                                                               significance at 1, 5 and 10% level respectively.


                                                  7                     8                        9                     10                      11                     12
                                                                                                                                                                 Loan Loss
                                            Overheads        Personal Expenses            Employment           Wage (Personal              Wage                 Provisions to
                                             to Assets           to Assets                 to Assets             Expense)               (Overheads)             Gross Loans
Dummy Public Ownership                          0.375               0.204                     0.039                -8.368                 -16.895                   1.405
                                            [3.38]***            [2.83]***                 [8.32]***             [5.82]***               [4.59]***               [2.94]***
                                              (2.22)**             (1.73)*                 (5.26)***             (3.64)***               (4.40)***                (2.09)**
Dummy Foreign Ownership                         0.204               0.126                     0.012                -1.035                  -3.801                   0.304
                                              [2.09]**             [1.75]*                 [3.08]***               [0.88]                  [1.51]                   [1.22]
                                                (1.31)              (1.03)                   (1.62)                (0.45)                  (0.95)                   (0.84)
Dummy Listed                                    0.288               0.065                     0.003                0.893                    3.667                    -0.6
                                              [2.50]**              [0.77]                   [0.69]                [0.77]                  [1.28]                 [2.12]**
                                               (1.96)*              (0.64)                   (0.56)                (0.58)                  (1.22)                  (1.73)*
Lag Total Assets (Log)                          -0.161             -0.118                    -0.011                4.078                    9.214                   0.067
                                            [3.01]***            [3.13]***                 [8.31]***             [9.20]***               [7.51]***                  [0.72]
                                              (2.43)**            (2.55)**                 (5.23)***             (6.50)***               (6.46)***                  (0.61)
Non-Interest Income to Assets                   0.285               0.101                     0.004                1.802                     3.47                   0.404
                                            [5.81]***            [2.70]***                   [1.50]               [2.58]**                [1.73]*                [2.67]***
                                            (4.78)***             (2.09)**                   (1.13)              (2.98)***                 (1.65)                (2.19)***
Deposits to Assets                              -0.012              0.003                    0.0003                -0.252                  -0.794                   0.046
                                                [1.44]              [0.73]                  [1.86]*              [4.01]***               [4.40]***               [3.35]***
                                                (1.28)              (0.61)                   (1.20)               (2.32)**               (3.44)***               (2.89)***
Loans to Assets                                 0.007               0.004                    0.0002                0.029                   -0.035                  -0.009
                                              [1.98]**             [1.87]*                  [1.83]*                [1.05]                  [0.58]                   [0.91]
                                                (1.37)              (1.28)                   (1.03)                (0.67)                  (0.43)                   (0.71)
Observations                                     574                 384                       387                  270                      384                     488
R-squared                                        0.41                0.52                      0.57                 0.73                     0.65                    0.43
Number of Countries                                9                  9                         9                     9                       9                       9
Number of Banks                                  120                  92                       102                   77                      104                     115




                                                                                       46