Arab banks’ prudence regarding risk taking and regulation is paying off, and providing stability in an era of regional political turmoil and low oil prices.

The Arab world is in upheaval. Long-running conflicts in Syria, Libya and Yemen show little sign of easing, just as new political cleavages are emerging in the Gulf Co-operation Council. Low oil prices are hitting the fortunes of the region’s major oil producers and denting their ability to provide work for a new generation of nationals. Though bright spots exist, particularly in Tunisia, where a progressive government is taking the country in the right direction, and in Egypt, where the economy is showing signs of life, they are the exception rather than the rule.

But the failings of political leadership have not extended to the region’s central banks. For the most part, apex institutions in the Arab world have nurtured some of the strongest banking markets anywhere. Some have applied the lessons learned from the financial crisis; others have always kept clear of loose or risky regulatory policies. Either way, over the past decade, prudence has prevailed.

This has helped to push Middle Eastern and north African banks in a safe direction of travel. On the ground, many lenders are quick to credit the work of their central bank in promoting a stable operating environment. But praise must also be reserved for the banks themselves: few lenders were hit by the financial crisis, even if there were some headline casualties in the larger markets. And over the past decade, most regional banking systems have gone from strength to strength.

Though higher average oil prices supported this trajectory, it is not the whole story. During these good years, Arab banks built up their capital positions, introduced new risk frameworks and strengthened their balance sheets. Today, they are reaping the rewards. In an environment of lower oil prices and elevated political risk, regional banks are a pillar of strength.

This strength is the product of long-term vision, hard work and the recognition that difficult choices have to be made even when times are good. Political leaders from across the region could do worse than take a lesson from their banks.

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