Foreign ownership and bank performance metrics in Saudi Arabia

Abstract

Purpose

This paper aims to examine the performance metrics of Saudi banks against the background of the proportion of foreign ownership.

Design/methodology/approach

One of the empirical challenges in addressing small developing markets is the analysis of small samples. The current study looks at a population of ten publicly traded banks in Saudi Arabia over a two‐year period. While the results of traditional parametric tests of difference are reported, the study also employs more robust distribution free non‐parametric tests of differences in location measures between the two groups.

Findings

Surprisingly though, the evidence provided in this paper shows that while banks with foreign ownership are indeed more aggressive in terms of capital structure, loan portfolios and regulatory tier 1 capital, they are unable to translate these into higher performance outcomes.

Research limitations/implications

One limitation is drawing inferences from small samples. The study overcomes this by using non‐parametric methods.

Practical implications

The study provides potential investors in the Middle‐Eastern region with information about the banking sector in Saudi Arabia.

Social implications

The results of the study may provide banking regulators with insights into the behavior of foreign owned banks in developing countries.

Originality/value

This is the first study that looks at this very important sector in the largest country within the GCC.

Citation

Abraham, A. (2013), "Foreign ownership and bank performance metrics in Saudi Arabia", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 6 No. 1, pp. 43-50. https://doi.org/10.1108/17538391311310734