The effects of globalisation of financial services on banking industry and stock market: an Algerian case study

Since the mid-1980s, Algeria has embarked on a programme of comprehensive financial liberalisation to establish a market-oriented financial system, and to develop the role of the Algiers Stock Exchange in the mobilisation of financial resources. The transition from a centrally planned to a market-oriented economy meant fewer regulatory barriers towards local and foreign banks. This study demonstrates that financial liberalisation is the main force that drives the globalisation of financial services, followed by financial innovations and the Internet. Globalisation has affected the performance of the two prevalent banking models in Algeria: interest based (conventional) and non-interest-based (Islamic). The benchmarks used to assess banking performance are: competition, profitability and efficiency. Quantitative and qualitative analyses show a direct link between banking efficiency and the globalisation of financial services. The study concludes that globalisation has more advantages than disadvantages to the Algerian banking sector and the Algiers Stock Exchange. The elimination of regulatory barriers has enabled state-owned banks to improve the quality of their services and to use more advanced information technologies. Private and foreign banks are also involved in the modernisation of the Algerian banking industry by launching innovative financial products and attracting local and foreign capital. However, this project emphasises that the removal of remaining regulatory obstacles would enable banks to benefit fully from the process of financial liberalisation, and to be active institutions in the financial market. Moreover, opening the Algiers Stock Exchange to large domestic and foreign companies would attract capital investments and boost equity trading in Algeria.