THE IMPACT OF GLOBAL CONFLICTS ON THE DEVELOPMENT OF BANKING SECTOR IN DEVELOPING COUNTRIES

Abstract

The article reveals the features of global conflicts, which nowadays can combine both armed and unarmed instruments of influence. We distinguish several transmission channels in transforming the local conflicts to global ones: the channel of migrants, the information channel, the sociocultural channel, and the channel of financial flows. Regarding the impact of global conflicts on the banking sector we determine five hypotheses and evaluate them based on the case of Arab Spring countries (Libya, Syria, Iraq, Egypt, Tunisia, Yemen, Oman, Morocco, Jordan, Kuwait, Algeria). Firstly, financial depth fluctuates slightly, with a tendency to momentary slight reduction and subsequent growth acceleration in the period after the conflict. Secondly, the ratio of bank deposits to GDP decreases if there are prerequisites for the bank run especially under armed military conflict. Thirdly, the ratio of liabilities to assets of banks is reduced at the time the conflict begins, except when the country’s banking sector is highly developed and no fundamental factors are making it necessary to increase the share of the equity. Fourthly, the change in the level of net interest margin with the onset of the conflict depends on the level of depositors’ confidence in the banking sector and the ability of borrowers to service loans with increased interest rates. Fifthly, the degree of market concentration (the share of TOP-3 and TOP-5 banks) as a result of the conflict increases unless the conflict leads to the liberalization of the banking sector.