Challenges and opportunities of liberalization in the GCC banking industry with special focuson kuwait

Abstract EN

The financial services industry has been subject to dramatic changes over the past decades as a result of the widespread use of advanced information technology, deregulation and financial liberalization.

This has reduced margins in traditional banking activities, leading banks to merge with other banks both at home and abroad.

This paper reviews the main characteristics of the consolidation process in emerging markets, and evaluates the potential effects of foreign bank entry to the Gulf Cooperation Council (GCC) region in general; and to Kuwait in particular, in light of the GATS agreement.

The empirical analysis in this paper is applied to the Kuwaiti banking sector and uses the mark-up estimation to determine the expected impact of competition in the event of trade liberalization.

Results show that the financial sector in Kuwait has a significant mark-up on the local market, indicating that the existing conditions in market regulation have almost isolated Kuwaiti banks from external competition through legal and regulatory barriers.

Additionally, restrictions on establishing new banks have depressed local competition and hindered the effectiveness of market forces in adjusting the banking industry