The Impact of Financial Liberalization on the Performance of the Algerian Public Banks.

169 Pages·2015·2.37 MB·English

DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA
MINISTRY OF HIGHER EDUCATION AND SCIENTIFI RESEARCH
UNIVERSITY OF TLEMCEN
FACULTY OF ECONOMICS, COMMERCE AND MANAGEMENT

The Impact of Financial Liberalization on

the Performance of the Algerian Public Banks.

Thesis submitted as a partial fulfillment of the “Doctorate” degree
in Economics

Thesis presented by: Supervised by:
Souad GUESMI Prof. Mohamed BENBOUZIANE

Jury Members:
Prof. Abdelkader DERBAL President University of Oran
Prof. Mohamed BENBOUZIANE Supervisor University of Tlemcen
Prof. Ali BOUHANNA Examiner University of Tlemcen
Dr. Mohamed BEZZAOUYA Examiner University of Tlemcen
Dr. Soufiane SLIMANE Examiner University of Relizane
Dr. Mohamed BENSAID Examiner University of Sidi Belabbes

2014-2015
Dedication

This thesis is a dedication to my husband, my dearest father and to my
beloved tender mother who mean everything to me.
To my brothers who mean a lot to me.
To all my family -Guesmi and Boutayeba- who believed in me and
supported me in practical and constant ways, their confidence in my abilities
and their belief in the importance of this work have ensured its completion.

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Acknowledgments

I am extremely grateful to the almighty Allah who bestowed me the
understanding and perseverance to make this accomplishment possible.
I would like to express my special thanks, gratitude, and appreciation to my
supervisor Prof. Mohamed Benbouziane for his guidance, suggestions, and valuable
comments made this work possible.
My special thanks and respects go to the members of the examining committee,
for their consent to take part in reading and discussing this thesis.
This thesis would not have been accomplished without the help and support of
my husband Dr. Faiçal Boutayeba.
Finally, I express my sincere gratitude to my parents for their prayers and their
moral support.
Thanks a lot.

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Abstract:

The main aim of this study is to investigate the impact of financial liberalization on
the performance of the Algerian public banks. In order to achieve this goal, a quantitative
analysis has been conducted for a panel data sample covering five public banks over the
period (1997-2012). The model of this study includes the determinants of performance
which are bank specific variables and macroeconomic variables. The banks’ performance
was proxied by using return on assets (ROA), return on equity (ROE), and net interest
margin (NIM). Besides, the financial liberalization was also proxied by using: the size of
intermediation, real interest rates, and bank concentration. The study showed evidence
that both the size of intermediation and bank concentration impact positively the
performance of Algerian public banks. In contrast, it showed that real interest rates do not
impact this latter.

Keywords: financial liberalization, public banks’ performance, panel data, Algeria.

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Table of Contents
Dedication…………………………………………………………………………….……….i
Acknowledgements………………………………………………………………….……….ii
Abstract……………………………………………………………………………...……….iii
Table of contents………………………………………………………………….…………iv
List of tables…………………………………………………………………….….……….viii
List of figures………………………………………………………………………..……….ix
List of appendixes……………………………………………………………………….……x
Introductory Chapter…………………………………………………….....…01
1.1. Preface……………………………………………………………………………………01
1.2. Research Problematic……………………………………………………………………02
1.3. Research Hypothesis……………………………………………………………………..02
1.4. Importance of the Study……………………………………………………………….…02
1.5. Objectives of the Study………………………………………………………………..…02
1.6. Justification for the choice of subject…………………………………………………....03
1.7. Data and Methodology……………………………………………………………..…….03
1.8. Previous Studies……………………………………………………………………..…..04
1.9. Difficulties of the Study……………………………………………………………..…..06
1.10. Limitations of the Study…………………………………………………………….…06
1.11. Structure of the Study…………………………………………………………….……06
Chapter Two: Theoretical Framework………………………………………07
Introduction………………………………………………………………………………….08
2.1. The importance of financial development sector………………………………….….09
2.1.1. Defining financial system…………………………………………………………..…09
2.1.2. Structure of a Financial System……………………………………………………....09
2.1.3. The role of banking sector on economy……………………………………………....11
2.1.4. What is financial development?....................................................................................11
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2.1.5. The relationship between FD and Economic growth……………………………..…..14
2.1.6. The hypotheses of financial development……………………………………….….. 16
2.2. The impact of financial liberalization…………………………………………………17
2.2.1. Financial repression before financial liberalization………………………………..17
2.2.1.1. Rational for and policies of financial repression………………………………….…18
2.2.1.2. The effects of financial repression……………………………………………………20
2.2.2. The process of financial liberalization………………………………………………23
2.2.2.1. The theoretical arguments for financial liberalization……………………………….24
2.2.2.2. Elements of financial liberalization………………………………………………... 25
2.2.2.3. The McKinnon Shaw paradigm (analysis)…………………………………………..27
2.2.2.4. Extensions and criticisms of the McKinnon Shaw approach…………………….…28
2.2.2.5. Financial liberalization and banking performance and efficiency……………….…29
2.2.2.6. Potential benefits qualifications and risks to liberalization………………………...32
Conclusion……………………………………………………………………………………36
Chapter Three: Empirical Evidence……………………………..………..….37
Introduction…………………………………………………………………………….…….38
3.1. East Asia and Pacific……………………………………………………………….……..39
3.2. Europe and Central Asia………………………………………………………………….45
3.3. Latin America and the Caribbean………………………………………………………..47
3.4. Sub-Saharan Africa………………………………………………………………………49
3.5. Middle East and North Africa……………………………………………………………53
3.6. South Asia………………………………………………………………………………..54
Conclusion…………………………………………………………………………………….58

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Chapter Four: Banking System Reform in Algeria…………………...………….59
Introduction……………………………………………………………………………….…60
4.1. Algerian banking system under financial repression …………………………..…….61

4.1.1. From 1962 to 1979……………………………………………………………….…...…61
4.1.2. From 1980 to 1989……………………………………………………………....………65
4.2. Financial liberalization of the Algerian banking system..............................................67
4.2.1. Algerian banking system under the law 90/10..............................................................68
4.2.2. Development of the Algerian banking system after the law of 90/10…………….……72
4.2.3. The Adoption of the financial liberalization in the Algerian banking system…….…74
Conclusion……………………………………………………………………………………83
Chapter Five: Econometric Methodology and Results Discussion...............84
Introduction……………………………………………………………………………….…85
5.1. General Framework and Objectives of the Econometric Study..................................86
5.2. The Decision Rule………………………………………………………………………86
5.3. Data, Methodology and the Model Used………………………………………………87
5.3.1. Data……………………………………………………………………………….……87
5.3.2. Research Methodology and Model Specification……………………………….……87
5.3.2.1. Research methodology………………………………………………………………87
5.3.2.2. Model specification………………………………………………………………….89
5.4. Presentation and interpretation of empirical results…………………………………96
5.4.1. Results of stationary tests………………………………………………………………96
5.4.2. Results of first selections………………………………………………………………98
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5.4.3. Results of second selections………………………………………………….….……101
5.4.4. Results of third selections………………………………………………………..……107
5.4.5. Results of fourth selections……………………………………………………………111
5.5. Results discussion…………………………………………………………………..…116
Conclusion……………………………………………………………………………….…118
General Conclusion……………………………………………………………………119
References…………………………………………………………………………………123
Appendixes…………………………………………………………………………..…….143

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List of Tables
N Title Page
01 The level of banks' margin, capital, deposit allocation, liquidity and profit 31
02 Evolution of withdrawal’s public institutions for the period (77-81) 63
03 The most important proposals put forward by the IMF 75
04 Credits to state and economy 81
05 Results of panel unit root tests (significant at 5%) 97
06 Results of Kao's Residual Co-integration Test for S1, S2, and S3 98
07 Equation estimation for S1 99
08 Equation estimation for S2 100
09 Equation estimation for S3 101
10 Results of Kao's Residual Co-integration Test for S4, S5, and S6 102
11 Results of Hausman specification test for S4 102
12 Granger causality test for S4 103
13 Hausman specification results test for S5 104
14 Granger causality test for S5 104
15 Hausman specification results test for S6 105
16 Granger causality test for S6 106
17 Results of Kao's Residual Co-integration Test for S7, S8, and S9 107
18 Hausman specification results test for S7 107
19 Granger causality test for S7 108
20 Hausman specification results test for S8 109
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21 Granger causality test for S8 109
22 Hausman specification results test for S9 110
23 Granger causality test for S9 111
24 Results of Kao's Residual Co-integration Test for S10, S11, and S12 111
25 Hausman specification results test for S10 112
26 Granger causality test for S10 113
27 Hausman specification results test for S11 113
28 Granger causality test for S11 114
29 Hausman specification results test for S12 115
30 Granger causality test for S12 115
List of Figures
N Title Page
01 The Channels through which the financial sector influences 13
economic growth
02 A Repressed Financial System 20
03 Mckinnon-shaw financial repression 21
04 Rates of rediscount (1990-2010) 73
05 Real interest rates (1994-2013) 76
06 The evolution of the creditor interest rates in the Algerian 77
banking system
07 The evolution of the debtor interest rates in the Algerian 77
banking system
08 Legal reserves (1999-2012) 78
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