Sam Hakim

The cost of sovereign lending in the Middle East after September 11

One of the casualties in the aftermath of the attacks on September 11 has been global confidence in the Middle East. Sovereign risk – the credit risk assessment to the obligations of central governments – is believed to have increased. Using data from JP Morgan, Moodys, S&P, and the World Bank, we explain and quantify the variability of sovereign risk in five MENA countries between 1998 and 2002. Three immediate implications emerge from our results. Our findings help policymakers in MENA countries (1) better understand how financial markets are pricing their risk, (2) identify the specific risk bins which influence their credit spreads, and (3) suggest mitigation techniques on how their sovereign risk can be reduced.

Profitability and Risk Management in Banking: A Comparative Analysis of Egypt and Lebanon

We investigate the profitability and risk management in banking in two prominent countries in Middle East and North Africa (MENA), Egypt and Lebanon, where banks operate under market-oriented economic regimes. The study covers the 1990s which witnessed banking sector reforms towards a more efficient financial system. Noting the differences in the structure of the banking system and the monetary changes in Egypt and Lebanon, we investigate the impact of liquidity, credit, and capital on bank profitability in each countrys banking sector. Based on our findings, we draw conclusions on the strength of risk management practices and enforcement of banking regulations.

Are banks effective in the economic recovery from the Arab Spring

We analyze the role of banks in Bahrain, Egypt, Libya, Tunisia, and Yemen, pre- and post-revolution, and find that the volume of credit they offered to the private sector was neutral to real economic growth. Supported by a recent IMF study which ranks banking regulation and supervision ‘poor’ or ‘below-average’ in four out of the five countries under study, we attribute the limited effectiveness of their banks to government intervention in credit allocation and pricing. Our results cast doubt on the banks’ ability to facilitate an economic recovery, and suggest that a monetary policy focused on bank credit alone may not be successful.

Have Foreign Banks Contributed to the Spread of the Global Financial Crisis to Saudi Arabia

The authors analyzed the role of domestic and foreign banks in Saudi Arabia during the financial crisis that has ravaged the world since 2007. The study is based on the growth rate in market share of the credit extended by each bank and investors’ perceptions about the risk exposure of this financial institution, distinguishing between purely domestic banks and institutions with joint ownership (local and foreign shareholders). Although there is a suspicion that partly owned foreign banks are more risk exposed than their purely domestic counterparts, these findings suggest otherwise. Specifically, the authors do not find evidence that foreign shareholders of Saudi banks, who suffered losses and liquidity problems in their home countries, cut credit in Saudi Arabia or acted in a manner inconsistent with their domestic counterparts. As such, the evidence does not support recommendations for a double standard in banking regulation.

Testing the Expectations Hypothesis in the Emerging Markets of the Middle East: An Application to Egyptian and Lebanese Treasury Securities

For many years, and despite many rejections,1 the expectations hypothesis remains the widely accepted premise believed to explain the shape of the yield curve. In its simplest form, the expectations theory suggests that the current long-term interest rate is a weighted average of current and expected future short-term rates. In this setting, the spread between long- and short-term rates predicts future changes in short rates. Changes in the slope of the yield curve depend on interest expectations, with steeper yield curves foreboding greater expectations of rate changes.