58 / 176
Improving Banking Supervisory Mechanisms
In the OIC Member Countries
41
Table 7: Banking Activity Regulations (Selected OIC Countries)
Source: World Bank, Bank Regulation and Supervision Survey
These indices are directly related to the core principle on permissible activities for banks in
the system. This issue is particularly important in order to compare different institutions as
they are classified as banks however in some countries engaging in non-banking activities are
allowed. The preferred practice is to restrict institutions which are classified as banks to pure
banking activities to achieve a more effective regulation and supervision scheme.
In terms of permissible activities in the banking sector, OIC countries are as restrictive as US
on average, and regulations are more stringent than EU-27 countries. We do not observe
significant differences when comparing different income categories among the OIC countries.
However, most countries in our sample of OIC countries lean towards the more restrictive side
of regulations with an overall average of 7.9 where the average of our selected sample of OIC
countries is 7.7. After the crisis in 2008, we note a decrease in the stringency of regulations on
the permissible activities for banks, where the selected OIC drops from 9 to 7.7 and OIC
average decreases from 8.7 to 7.9. In terms of individual countries, we observe a similar trend
where countries move to a less restrictive regulatory scheme on banking activities. Based on
the available data for the selected OIC countries, Malaysia is the least restrictive one with an
average index value of 6 and Turkey along with UAE are the most restrictive countries with
average values of 9. For UAE, the least restrictive activity areas is securities activities. And
most restrictive ones are real estate and insurance activities. We observe a similar structure in
the banking sector where regulations are more stringent on real estate activities. This is an
important point regarding the increased size of the construction sector in these countries.
Bank Activity
Regulations
Survey Indonesia Kazakhstan Malaysia Nigeria Pakistan Turkey
UAE
Saudi Arabia Algeria
Selected
OIC
Average
Secuirity Activities
2000
2
1
2
2
N/A.
3
1
2
N/A.
1,9
Range 1-4
2003 N/A.
3
2
3
2
2
1
1
2
2,0
2007
4
2
2
N/A.
3
N/A.
1
2
1
2,1
2011
2
N/A.
2
2
2
2
1
N/A.
N/A.
1,8
Insurance Activities
2000
4
1
2
2
3
2
N/A.
2
N/A.
2,3
Range 1-4
2003 N/A.
3
3
3
3
2
3
3
2
2,8
2007
4
3
3
N/A.
3
N/A.
N/A.
3
4
3,3
2011
2
N/A.
2
2
3
3
4
N/A.
N/A.
2,7
Real Estate Activities
2000
4
1
3
2
N/A.
4
N/A.
4
1
2,7
Range 1-4
2003 N/A.
4
3
3
4
2
1
4
1
2,8
2007
4
4
3
3
4
N/A.
N/A.
4
1
3,3
2011
3
N/A.
N/A.
3
3
4
4
N/A.
N/A.
3,4
Overall Restrictions
on Banking Activity
2000
10
3
7
6
N/A.
9
N/A.
8
N/A.
7,2
Range-3-12
2003 N/A.
10
8
9
9
6
5
8
5
7,5
2007
12
9
8
N/A.
10
N/A.
N/A.
9
6
9,0
2011
7
N/A.
6
7
8
9
9
N/A.
N/A.
7,7