1. Market Overview
The banking sector in the Middle East and North Africa witnessedAfrica witnessed recovery in the year 2010 and 2011 after the international financial crisis. The downside risk in MENA Banks is limited compared to its international peers. The region is characterised by high financial support from the government, high public spending, less integration with global markets and low exposure to the sovereign debt crisis.
Chart 1: Foreign Liabilities as a Percentage of Total Liabilities (Source: IMF Regional outlook 2011) [pic]
Source: IMF Regional Outlook 2011
Due to conservative risk practices adopted by MENA banks, the foreign assets are primarily in the form of deposits with almost 85 per cent denominated in the US dollars and the rest in currencies of stronger European nations such as Germany and France.
2. Capital Adequacy
The median Tier 1 capital ratio of the MENA banks was estimated at around 15 per cent while median capital adequacy ratio was at 18 per cent in 2011. Both these ratios suggest strong fundamentals and place MENA banks in a good position to comply with the new and stringent Basel III requirements, the full implementation of which is likely to take place by 2019.
3. Profitability Analysis
The Middle Eastern banks recorded high net income margins of 42.3 per cent and 41.9 per cent in 2010 and 2011 respectively. On the other hand, banks in North Africa recorded a net income margin of 30.2 per cent and 31.1 per cent in 2010 and 2011 respectively. However, Profit margin is expected to be maintained at the same level in 2012. Other profitability measures such as Return on Assets and Return on Equity were estimated at 1.6 per cent and 12.5 per cent respectively in 2011.
4. Asset Quality
Asset growth (Year-on-Year) stood at an aggregate of 5.4 per cent in 2011 and 6.5 per cent as of June 2012 for 81 banks in the Middle East. Overall asset growth recorded a Compound Annual Growth Rate (CAGR) of...
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