Since the global financial crisis of 2008, emerging market economies have experienced a surge in capital flows in response to significant monetary easing by major central banks. Gross capital inflows to the Middle East and North Africa (MENA) have remained high compared to other emerging markets, but their composition has changed significantly, with a surge in portfolio flows (equity and bond instruments) and a decline in foreign direct investment. […]
(Versions in عربي)
Two days ago, I had the pleasure of visiting Kuwait, a member country of the Gulf Cooperation Council (GCC). It was a whirlwind visit, with many places to see and people to meet, in a thriving corner of the global economy. Kuwait has extended to me its emblematic tradition of hospitality— a testament to its ancient and noble culture. I was awed by the magnificent artifacts of the al-Sabah collection, which I saw in the beautifully restored Dar al-Athar al-Islamiyyah cultural center.
Back to economics. The member countries of the council—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—have some of world’s highest living standards. The region has also become a major destination for foreign workers and a source of remittances for their families back home. And it is a financial center and a hub for international trade and business services.
By Masood Ahmed
The IMF’s latest regional economic outlook for the Middle East compares the performance of Islamic banks in the countries of the Gulf Cooperation Council (GCC) with conventional ones during the global financial crisis.
Islamic banks were less affected during the initial phase of the crisis, reflecting a stronger first-round impact on conventional banks through mark-to-market valuations on securities in 2008. But, in 2009, data for the first half of the year indicate somewhat larger declines in profitability for Islamic banks, revealing the second-round effect of the crisis on the real economy, especially real estate.
Going forward, Islamic banks overall are better poised to withstand additional stress, according to the IMF analysis.
Islamic banks have grown substantially in recent years, with their assets currently estimated at close to $850 billion. Overall, the risk profile of Islamic banks is similar to conventional banks in that the risk profile of Shariah-compliant contracts is largely similar to that in conventional contracts, and credit risk is the main risk for both types of banks.