BANKING

Banking and finance issues in the context of the modern Middle East.

Commercial banks are especially strategic intermediaries between enterprises and investors in most countries of the Middle East and Africa, where alternative sources of private capital, such as stock markets, are relatively underdeveloped. In most of these countries, the banks are also important instruments of political control and patronage. Structural adjustment, undertaken on the advice of international financial institutions since the mid-1980s, has not significantly altered the patterns of political control discussed in this article.

History

Although the basic instruments of European finance were probably imported from Egypt to Italy (and from there to the rest of Europe) in the early Middle Ages, Britain, followed by France, Germany, and other European powers, introduced modern banking into the region in the nineteenth century. European trading houses founded banks in Alexandria, Egypt, as early as 1842, shortly after the British obliged Muhammad Ali to dismantle his state monopolies. The British opened a bank in rİzmir, Turkey, in the same year. Moses Pariente, a Moroccan Jew operating under British consular protection out of Europe's trading entrepôt of Tangier, opened Morocco's first bank, a trading house tied to the Anglo-Egyptian Bank based in London and Gibraltar, in 1844.

Although Britain's İzmir venture failed, the Ottoman authorities took up the challenge to modernize their finances. The Porte (the Ottoman authorities) prevailed upon two sarraflar (money changers) to establish the Bank of Istanbul in 1847 to trade in sehim kaimesi (treasury bond documents), and Tunisia's infamous finance minister, Mahmud Bin Ayad, immediately followed suit with a central bank, Dar al-Mal, to issue treasury bills. But these experiments in central banking were short lived: Bin Ayad looted his bank and fled the country in 1852. Virtually all of the other commercial banks founded in the nineteenth century were European, and they displaced the moneychangers or, like the National Bank of Egypt, subcontracted with them for business in the informal agricultural sector. The oldest survivor into the twenty-first century is the Osmanli Bankasi (Ottoman Bank), originally founded in London in response to the Ottoman decree of 1856, inspired by Her Majesty's Government, calling for "banks and other similar institutions" to promote and monitor overseas loans to the Ottoman treasury. The Ottoman Bank acquired a distinctly French look after 1863, when a consortium led by Crédit Mobilier doubled its shares and renamed it the Banque Impériale Ottomane (Ottoman Imperial Bank). As the result of a merger in 2001, it became Turkey's ninth largest bank but is wholly owned by an even larger Turkish private sector bank. The National Bank of Egypt, founded in 1898 and nationalized by Gamal Abdel Nasser in 1964, is one of Egypt's two most powerful state banks. The only other recognizable remnant of nineteenth-century European imperialism is the Banque Franco-Tunisienne, founded in 1878 but barely surviving in the twenty-first century after years of mismanagement by a leading Tunisian public sector bank.

National Banking Systems

Banking was too strategic an industry to escape the control of national governments once they achieved a degree of economic and political independence from their foreign sponsors. The patterns of control varied with the political and economic strategies of the respective regimes. The monarchies tended to prefer indirect family control through their business interests, whereas the single-party states, such as Turkey in the 1930s, and Algeria, Egypt, Iraq, Syria, and Tunisia in the 1960s, established public sectors for absorbing most or all of the banks, whether they were foreign or locally owned. Iran followed suit after the revolution of 1979. Israel had to bail out its big banks in 1983 but succeeded in selling off the government's share in some of them. The only republic in the region to support a privately owned banking system is Lebanon. Until the Civil War broke out in 1975, Lebanon was the financial center and trading entrepôt for much of the Middle East. Its Bank Control Commission regulates the eighty or so commercial banks on behalf of the Banque du Liban, the country's central bank, and remains a model in the region for the professional supervision of banks.

Like Lebanon, the monarchies that survived the revolutions sweeping the Arab world in the 1950s and 1960s tended to conserve their banks as well as their ruling families, and they encouraged local businesspeople to gain control of the banks in the 1970s and 1980s, usually continuing a close association with their foreign founders. Until 2003, for instance, Citibank not only had a 30 percent interest in the Saudi American Bank but also a management contract. The leading Moroccan banks, despite the Moroccanization of commerce in 1973, have kept close ties with the French banks that founded them. In Jordan, the Arab Bank deserves special mention: Founded by Abd al-Hamid Shoman in Jerusalem in 1930, the bank survived the creation of Israel in 1948 and Jordan's subsequent takeover of the West Bank and East Jerusalem. It is not only the oldest locally owned bank but also one of the largest international ones to be based in an Arab country. The other large international players, such as Arab Banking Corporation, are based in the Persian Gulf states (see Table 1). Bahrain, a money-market center for offshore international banking since the mid 1970s, became the center for Islamic finance in the twenty-first century as well.

Market Penetration

Many Muslims tend to distrust banks, either out of a general distrust of public institutions or because they object to interest on religious grounds. The banking systems that preserved continuity with their foreign origins tended to be more in touch with local depositors than the public sector monopolies that broke with the foreign banks. The percentage of money held in banks, rather than as cash under people's mattresses, was high in the Gulf Cooperation Council (GCC) city states and also in Israel, Lebanon, Turkey, and Iran—countries that had delayed or never gotten around to nationalizing their respective banking systems.

The small size of a country may ease the penetration of banks into household finance, but the banks of large countries like Turkey and Iran also substantially outperformed those in all Arab countries except Lebanon. Lebanon had always encouraged commercial banking, which became its virtual

Top 100 Arab banks

Country	Bank	Capital (US $m)	Total assets (US $m)	Capital assets ratio (%)	Return on assets (%)
Syria	Commercial Bank of Syria	730	66,215	1.1	0.2
Bahrain	Arab Banking Corporation	2,110	26,586	7.94	0.6
Saudi Arabia	National Commercial Bank	2,275	26,569	8.56	na
Egypt	National Bank of Egypt	1,027	22,631	4.54	0.61
Jordan	Arab Bank	1,865	22,228	8.39	1.41
Saudi Arabia	Saudi American Bank	2,243	20,623	10.87	2.91
Saudi Arabia	Riyad Bank	2,139	17,933	11.93	2.01
Egypt	Banque Misr	528	16,130	3.27	0.44
Bahrain	Gulf International Bank	1,236	15,232	8.11	0.61
Kuwait	National Bank of Kuwait	1,421	14,551	9.77	2.52
Saudi Arabia	Al Rajhi Banking & Investment Corporation	1,794	13,816	12.99	2.98
Saudi Arabia	Saudi British Bank	1,055	11,194	9.42	1.98
Saudi Arabia	Arab National Bank	887	10,785	8.23	1.2
Saudi Arabia	Al Bank Al Saudi Al Fransi	1,075	10,683	10.06	2.11
Egypt	Banque du Caire	358	9,422	3.8	0.39
U.A.E.	National Bank of Dubai	1,133	8,893	12.74	1.38
U.A.E.	National Bank of Abu Dhabi	878	8,782	10	1.96
Libya	Libyan Arab Foreign Bank	445	8,769	5.08	1.52
Qatar	Qatar National Bank	1,294	7,797	16.6	1.86
Kuwait	Kuwait Finance House	685	7,674	8.93	2.26
U.A.E.	Abu Dhabi Commercial Bank	1,035	7,241	14.3	2.35
Algeria	Banque Extérieure d'Algérie	244	7,116	3.43	0.11
Saudi Arabia	Saudi Hollandi Bank	550	6,721	8.18	1.96
Morocco	Crédit Populaire du Maroc	536	6,716	7.99	1.63
U.A.E.	Emirates Bank International	1,075	6,406	16.78	2.38
Lebanon	Blom Bank	285	6,285	4.54	1.41
Egypt	Bank of Alexandria	322	6,225	5.18	0.55
U.A.E.	Mashreqbank	797	6,181	12.89	1.93
Kuwait	Gulf Bank	619	6,114	10.12	2.24
Algeria	Banque Nationale d'Algérie	312	5,944	5.25	0.6
Algeria	Crédit Populaire d'Algérie	273	5,557	4.91	0.02
Kuwait	Commercial Bank of Kuwait	618	5,503	11.22	2.12
Kuwait	Burgan Bank	530	4,839	10.95	1.46
Lebanon	Banque de la Méditerranée	470	4,659	10.09	0.64
Lebanon	Byblos Bank	271	4,651	5.83	1.14
Lebanon	Banque Audi	247	4,567	5.42	0.95
Morocco	Banque Commerciale du Maroc	441	4,313	10.23	2.14
Morocco	Banque Marocaine du Commerce Extérieur	449	4,199	10.7	1.11
U.A.E.	Dubai Islamic Bank	310	4,175	7.41	1.02
Egypt	Commercial International Bank (Egypt)	351	4,143	8.47	2.43
Bahrain	Ahli United Bank	542	4,103	13.22	1.34
Saudi Arabia	Saudi Investment Bank	594	4,073	14.59	1.99
Kuwait	Al-Ahli Bank of Kuwait	518	3,859	13.42	1.18
U.A.E.	Union National Bank	401	3,613	11.11	1.83
Kuwait	Bank of Kuwait & the Middle East	445	3,519	12.64	1.47
Oman	BankMuscat	318	3,502	9.08	0.68
Bahrain	Investcorp Bank	918	3,443	26.66	1.46
Lebanon	Banque Libano-Française	186	3,286	5.66	1.23
Morocco	Wafabank	317	3,253	9.73	1.6
Lebanon	Fransabank	218	3,108	7.03	1.3
Bahrain	Bank of Bahrain & Kuwait	299	2,929	10.21	1.52
Egypt	Misr International Bank	232	2,910	7.99	1.92
Bahrain	National Bank of Bahrain	330	2,868	11.5	1.68
Egypt	Arab International Bank	405	2,746	14.75	0.38
Tunisia	Société Tunisienne de Banque	235	2,668	8.8	1.17
Oman	National Bank of Oman	245	2,472	9.89	-0.64
Egypt	Suez Canal Bank	166	2,450	6.77	0.94
Jordan	The Housing Bank for Trade and Finance	362	2,410	15.01	1.76
Tunisia	Banque Nationale Agricole	243	2,242	10.84	0.97

Country	Bank	Capital (US $m)	Total assets (US $m)	Capital assets ratio (%)	Return on assets (%)
Table by GGS Information Services, The Gale Group.
Egypt	Faisal Islamic Bank of Egypt	77	2,221	3.45	0.39
Lebanon	Credit Libanais	108	2,123	5.1	0.92
U.A.E.	Commercial Bank of Dubai	333	2,002	16.63	2.94
Jordan	Jordan National Bank	98	1,910	5.12	-0.03
Tunisia	Banque Internationale Arabe de Tunisie	156	1,810	8.62	1.55
Qatar	Doha Bank	172	1,787	9.64	1.17
Oman	Oman International Bank	229	1,749	13.08	0.38
Lebanon	Bank of Beirut & the Arab Countries	78	1,682	4.64	0.79
U.A.E.	Arab Bank for Investment & Foreign Trade	336	1,573	21.35	0.7
Egypt	National Bank for Development	95	1,567	6.05	0.89
Egypt	Egyptian American Bank	116	1,537	7.56	1.06
Egypt	National Société Générale Bank	125	1,487	8.41	2.27
Libya	Sahara Bank	269	1,483	18.14	1.18
Qatar	Commercial Bank of Qatar	182	1,431	12.71	1.94
Morocco	Crédit du Maroc	128	1,417	9.04	1.13
Saudi Arabia	Bank Al-Jazira	185	1,365	13.53	1.12
Jordan	Jordan Islamic Bank for Finance & Investment	76	1,280	5.9	0.15
Bahrain	Shamil Bank of Bahrain	258	1,242	20.8	1.69
Qatar	Qatar Islamic Bank	102	1,213	8.4	1.52
Tunisia	Banque du Sud	101	1,079	9.35	1.55
Jordan	Bank of Jordan	75	1,040	7.18	2.52
Egypt	Arab African International Bank	142	1,029	13.84	1.01
Tunisia	Banque de Tunisie	116	945	12.28	2.59
U.A.E.	First Gulf Bank	141	938	15.08	1.79
Bahrain	United Gulf Bank	214	931	23.01	0.43
Bahrain	Bahrain International Bank	176	888	19.78	-5.29
Egypt	Cairo Barclays Bank	64	877	7.3	1.49
Oman	Oman Arab Bank	100	832	12.01	2.14
Jordan	Jordan Kuwait Bank	76	804	9.44	1.78
U.A.E.	National Bank of Fujairah	151	718	21.1	2.66
U.A.E.	Invest bank	135	700	19.31	3.11
U.A.E.	Rakbank	147	660	22.32	2.49
Bahrain	Bahraini Saudi Bank	88	595	14.82	2
U.A.E.	National Bank of Sharjah	188	557	33.8	3.73
Egypt	Delta International Bank	108	544	19.88	5.9
Bahrain	TAIB Bank	145	540	26.88	1.84
U.A.E.	Bank of Sharjah	93	525	17.78	2.6
Egypt	Société Arabe Internationale de Banque	85	500	16.89	2.1
U.A.E.	United Arab Bank	117	484	24.08	4.04
U.A.E.	National Bank of Umm Al-Qaiwain	126	466	27.04	3.45
Bahrain	Albaraka Islamic Bank	62	260	23.83	1.06

government during the anarchy of 1975 through 1990. Turkey systematically encouraged a Turkish private sector after 1924, and Iran delayed its revolutionary attack on privately owned banks until 1979, when the banks had already acquired substantial control over the country's money—a control that would be recovered in the 1990s (see Table 2).

Liberalization

Under the gun of international debt workouts after 1982 (but this time by international financial institutions rather than the nineteenth-century imperialists), most of the commercial banking systems in the region were partially liberalized in the 1990s. In the predominantly state-owned banking systems of Algeria, Egypt, and Tunisia, liberalization meant adding a satellite private sector, whereas reform in the monarchies tended to strengthen privately owned oligopolies in defense of their respective ruling families. The different regimes of the Middle East and North Africa were able to parry the international pressures for reform so as to reinforce rather than undermine their enduring authoritarian

Money in banks as percent of money supply

	1975	1980	1985	1989	1990	1995	1998
Table by GGS Information Services, The Gale Group.
Algeria	62.2%	54.7%	65.8%	61.1%	60.6%	68.7%	69.7%
Bahrain	86.9%	88.9%	91.3%	91.9%	88.7%	92.6%	95.0%
Egypt	52.4%	67.2%	73.0%	82.9%	85.0%	86.0%	85.8%
Iran	85.9%	72.5%	76.1%	81.3%	82.7%	89.0%	90.1%
Iraq	46.5%	43.3%	n/a	n/a	n/a	n/a	n/a
Israel	85.0%	91.3%	98.2%	96.4%	96.2%	96.7%	n/a
Jordan	52.4%	64.1%	71.7%	73.1%	71.3%	78.1%	82.5%
Kuwait	88.6%	91.2%	92.6%	93.7%	n/a	95.2%	95.4%
Lebanon	79.0%	86.2%	91.4%	92.2%	91.3%	95.4%	96.9%
Libya	74.6%	83.3%	80.5%	78.1%	76.4%	77.7%	68.6%
Mauritania	69.5%	66.4%	66.1%	71.2%	73.8%	71.6%	n/a
Morocco	67.4%	67.3%	71.5%	73.7%	74.3%	76.8%	79.3%
Oman	67.4%	70.8%	80.9%	82.8%	81.7%	84.4%	88.5%
Qatar	86.3%	84.7%	90.1%	91.3%	90.1%	92.4%	93.6%
Saudi	62.4%	66.8%	75.7%	81.1%	76.1%	82.1%	84.1%
Sudan	61.0%	61.3%	n/a	n/a	59.4%	64.2%	60.0%
Syria	48.0%	44.1%	53.4%	48.5%	48.1%	53.4%	54.3%
Tunisia	75.6%	79.3%	80.0%	83.1%	82.0%	83.2%	84.4%
Turkey	77.9%	77.0%	88.2%	88.8%	87.9%	92.5%	95.0%
U.A.E.	92.9%	90.9%	93.7%	94.3%	92.4%	92.1%	91.7%
Yemen	n/a	n/a	n/a	54.9%	n/a	47.4%	57.6%
PRDY				52.9%

traits. Neither in Egypt nor Tunisia, for example, were the patronage operations of their respective state banks seriously threatened, nor has the Moroccan private sector escaped a business oligopoly that is partly owned by the Makhzan (royal treasury). But foreign competition may pose new challenges under measures that break down national barriers to financial services.

Islamic Finance

One response to global economic pressures is Islamic finance, designed to attract the savings of people who distrust conventional banks. Islamic banking emerged officially for the first time in Dubai in 1974, and two Saudi entrepreneurs, Prince Muhammad al-Faisal (son of the late King Faisal ibn Abd al-Aziz Al Saʿud) and Shaykh Salih Kamil, then projected such banks to over twenty countries, including the United Kingdom and Denmark, in the subsequent decade. In some of the less developed countries, such as Sudan and Yemen, the Islamic banking movement made important inroads. The Faisal Islamic Bank of Sudan enabled Hasan al-Turabi to cultivate new business networks that supported his seizure of power in 1989 (but then deserted him in 1999 when his military allies removed him). The wealthy Gulf countries, however, fuel most of the steady growth of these new institutions. In Saudi Arabia in particular, conventional banks have opened up Islamic windows to satisfy customers who reject interest as a matter of Islamic principle but who are eager to receive legitimate returns on investment. Most of the savings attracted by Islamic banks are just as likely, however, to be reinvested abroad, in the United States or Europe, as those of the conventional banks.

The international crackdown on money laundering after 11 September 2001 adversely affected Islamic banks because the Al-Baraka group of Shaykh Salih Kamil was confused with a company called AlBaraka in Somalia, which transferred workers' remittances but was also suspected by the U.S. Treasury of being associated with international terrorists. The United States, however, has put only one very marginal Sudanese Islamic bank on its blacklist, and the Islamic banks not only recovered after the shock of 11 September but increased their share in the wealthy Gulf markets to well over 10 percent of their respective commercial banking assets.

see also faisal ibn abd al-aziz al saʿud; lebanese civil war (1975–1990); nasser, gamal abdel; turabi, hasan al-.

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Clement Moore Henry