By: Eziddin Mustafa Elkour*
Strategic analysis (part one)
The Libyan economy is expected to witness, in the coming period,
the number of structural changes, most important; practically participate in the global trade conventions, especially financial services trade, and gradual liberalization of capital flows, which is one of the main outputs of structural changes across the global financial system. That is expected to liberate banking activities inside Libya. In this, the Libyan banks are to face new competition from financial services providers and various activities with a large amount of business.
The Banking industry in Libya is one sector that might largely be influenced by the expected structural changes. Liberation of banks, deregulation, and removal of barriers in front of incoming services providers, force existed Libyan banks to be subjected to the reorganization of activities and prices, besides that fast changes in global markets, financial innovations, the availability of new financial tools. Some in compliance with Islamic laws, technological evolution, financial reorganization and restructuring, leaning towards major mergers that forced bulks to unprecedented levels, all of the previously made competition much more severe than other industries.
Competition in the banking industry is very sensitive, controlled by accurate and delicate measures, which will have major effect on financial and banking situations in third world countries, especially Arab countries and Libya, which forces monetary authorities to loosen restrictions and increase competition across banking sectors, to dispense inefficiency and decrease markets lower on prices.
But fears emanate from foreign banks (major players in banking investments) and others from possible services providers, with privileges much better than local banks, enables it to compete using different means. Foreign banks are part of massive banking corporations with different competitive advantages, earned through early beginnings and support they gain from state laws, that enabled them to expand, flourish and provide banking services for the wide, diverse audience. Such banks can acquire capital from different funding sources, and making use of financial innovations and new technology.
Thus, the State Libyan banks and private banks should search for more effective organizational solutions, within larger group of financial services and improve ways of providing, making use of technological financial innovations, develop management and apply censorship and institutional accountability, practice non-traditional activities, especially Islamic investment and funding formulas and tools, either for existed banks planning to provide such services or via opening space for private sector, by putting legislatures and laws through which private Libyan banks could be established, which would put more competitive pressures in ways that force Libyan banks generally to adjust their strategic directions, stimulate them to decrease expenses, increase revenues and improve performance. Banks performance and efficiency became critically for survival and expansion.
Development and providing credit and financial stability are top priorities in Libya; banks bear a big part of this responsibility for their role in the economy, in which banks formula still dominate more than money markets formula. The existence of public banks, as a financial sole intermediate, enabled them to control funding market, with the help of organizational restrictions imposed on the entry of financial corporations, and others of legal financial and economic blocks that undermined competition levels and increase concentration levels within the banking industry. Such laws and otherwise from organizational obstacles promote monopoly, restrict competition, protect strong elites and cause efficiency killing consequences.
One of price determinants lies in competition levels across the banking industry, as competition across any industry is limited between full competition and monopoly, and future competition sources in Libyan banks (after tending to monopoly and concentration) could fall under competition between existing banks and threat from new the comers.
With this, a new question arise, are there any obstacles could block entry for foreign financial services providers? This question will be answered in the next article, in which we will discuss the possibility of entering the Libyan banks industry from the strategic analysis point of view.
*A Libyan economist and banks expert
Translated By LIBYAPROSPECT