Improving Banking Supervisory Mechanisms
In the OIC Member Countries
23
Table 5: Banking versus Non-banking financial sector size in the selected OIC Countries
(percentage)
2007 2008 2009 2010 2011 2012 2013
Turkey 79 76 75 74 72 69 71
Algeria 97 97 93 92 91 92 N/A
Indonesia 49 47 44 40 40 39 45
Kazakhstan 85 85 82 81 82 81 95
Malaysia 74 71 71 69 73 68 68
Nigeria 42 85 71 32 44 53 83
Pakistan 71 70 70 70 74 76 81
Saudi Arabia 58 65 64 62 59 56 57
UAE 65 72 71 68 69 67 67
Eurozone 24 22 23 26 24 25 N/A
USA 19 11 13 13 13 14 14
Source: Bankscope
As can be seen from Table 5, except for Indonesia, banking sector dominates non-banking
financial sector in the selected OIC member states. For most of the member countries, total
banking sector constitutes around 65% of their respective financial sector (2013 average for
the selected OIC member countries). This finding in the selected OIC member states conflicts
with what we observe in the US and Europe. For instance, US has a very big non-bank financial
sector compared to its banking sector, where US banking sector asset size is less than 20% of
the total asset size of its financial sector because of a relatively large stock market brokerage
industry, financial derivative industry, asset management and insurance industry in the US
economy. In addition, there is a significant mortgage related financial industry in the US
economy. A similar observation holds true for the European economy. However, in the selected
OIC countries (which can be generalized for the whole OIC states), non-banking sector
including asset management companies, insurance industry, leasing industry are in a
development stage. Financial development literature supports an even distribution among
banking and non-banking industries; therefore there is an important room for improvement
for the non-financial sector in OIC member states.
In Figure 10, we present the total asset decomposition in the OIC members. For the selected
countries, the dominant asset class seems to be the loans as banks from the selected OIC
member countries do hold 39% of their assets in the form of a loan portfolio. This ratio is
lower than that of both US and EU. However, the securities portfolio of the member countries
is lower than that of both US and EU banking system. Banks in the selected member OIC states
hold only 11% of their assets in their security portfolio. This ratio in EU and US is two to three
times higher. The majority of OIC member states hold a significant amount of other assets, as
specified in Bankscope database, which surfaces as an important issue to be investigated in the
following sections. As can be seen in EU banking system, the amount of loans and securities in
EU banking system is higher than that of US banking system. However, general conclusion,
which can be withdrawn from the analysis, is that securities portfolio of selected OIC member
states is relatively small compared to European banking sector, which might be related to the
fact that trading activities in OIC member countries are relatively limited.