Financial services in the euro-mediterranean partnership : banking

Brack, Estelle and Elsen, Robert and Pons, Jean-François (2009): Financial services in the euro-mediterranean partnership : banking. Published in: Towards the free trade area, Euromed Market Programme (April 2009)

Abstract

Towards the goal to gather a better understanding of the banking structure and the regulatory practices in place, the Working Group on Financial Services in the Euro-Mediterranean Partnership developed a survey. This survey is based on a questionnaire which was addressed to the States of the MEDA region. The questionnaire tackled various topics related to the banking regulation, supervisory institutions in charge and the prevalent market conditions such as current market data. Furthermore the jurisdictions were asked to assess the compliance with the Core Principles for Effective Banking Supervision (BIS 25) in their countries.

Essential Banking laws and regulations are now in place in most countries of the region and Central Banks are upgrading their oversight capacity. Management systems are becoming more and more sophisticated and often include enhanced risk-based supervision functions procedures, with related manuals for supervision and training of staff. Bank Corporate governance as well as regulatory compliance with capital adequacy ratios have signifi cantly improved as a result of staff better prepared to carry out their newly introduced or strengthened obligations. Despite progress and a number of successful reforms, several challenges remain and need to be addressed to prepare the banking industry. Some of the necessary reforms would also facilitate fi nancial integration in the region accommodating the envisaged free trade: - Strengthen the soundness of the banking systems in all countries. In particular it is important to reduce the high level of non performing loans, to restructure state-owned banks, and to secure compliance with prudential rules ; - Increase competition in the banking system. Notably, extensive state ownership and restrictions on foreign bank entry stifl e competition and fi nancial deepening in the region; opening up the banking sector for commercial banks both for domestic credit institutions and those abroad is a solution ; - Deepen the fi nancial markets where they are bankdominated. Financial markets (money, interbank, foreign exchange, equity, and securities markets) are nascent or shallow in most countries, and nonbank fi nancial institutions are generally underdeveloped ; - Upgrade financial sector infrastructure. In particular, accounting and auditing practices, transparency and corporate governance, the legal and judicial framework, and the payment systems need to be strengthened.

• Item Type: MPRA Paper
• Language: English
• Keywords: Euromed MEDA; Banking; Convergence; Mediterranean countries; European Union
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration

References

Levine, Ross, 2005, “Finance and Growth: Theory and Evidence,” in Philippe Aghion and Steven Durlauf, eds., Handbook of Economic Growth, Vol. 1 (Amsterdam, Netherlands: Elsevier Science).

Tahari & al., “Financial Sector Reforms and Prospects for Financial Integration in Maghreb Countries“, IMF Working Paper WP/07/125