Regional Financial Integration in the GCC

Abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. We investigate the extent of regional financial integration in the member countries of the Gulf Cooperation Council. The limited volume data available suggests that regional integration is non-negligible. Bahrain and Kuwait investments especially are oriented towards the region. The development of stock markets in the region will also improve the extent of financial integration. Interest rate data shows that convergence exists and that interest rate differentials are relatively short-lived-especially compared to the ECCU, another emerging market region sharing a common currency. Equities data using cross-listed stocks confirms that stock markets are fairly integrated compared to other emerging market regions, although financial integration is hampered by market illiquidity.

The Integration of Financial Markets in GCC Countries

“…The presence of RIP indicates financial market integration in the GCC economies in addition to evidence of goods and services market integration. This finding is consistent with Espinoza, et al (2010) who found strong financial integration among the GCC countries. Our results indicate that, generally, investors in these economies are risk-neutral and that transaction costs are not very high.…”

Non-Performing Loans in Emerging Economies – Case Study of India

“…One of the most discussed features of the banks influencing problem loans is size of the bank. Size (SIZE) taken as logarithm of assets acts as a control for whether bigger banks are more vulnerable to the NPA problem than smaller banks (Chaudhury and Sensarma 2006, Salas and Saurina 1999, Espinoza and Prasad 2010, Hu et al 2004, Ranjan and Dhal (2003)…”

“…To capture bank level inefficiency, operating cost ratio (OCR) which is the ratio between operating expenses and total assets is considered. It is included with an expectation that NPAs will increase with high operating costs or low cost efficiency (Chaudhury and Sensarma 2006, Salas and Saurina 1999, Espinoza and Prasad 2010.…”

“…Therefore, the role of lending aggressiveness in NPAs is ambiguous. GRADV t-1 and GRADV t-2 are considered to capture the lag effects of growth rates in advances on NPAs ( Salas and Saurina 1999, Espinoza R and Prasad A 2010, Das A. & Ghosh S 2007.…”

Banking performance and industry growth in an oil-rich economy: Evidence from Qatar

“…Over the past two decades oil-rich Arab countries have taken important steps to achieve economic and financial integration. Espinoza, Prasad, and Williams (2010) show a regional financial integration following such policies. The economic structure of these countries is also similar, exhibiting convergence on many macroeconomic indicators, and they are likely to face common shocks.…”