Private banks in Algeria have until now been highly profitable, as the energy-rich country was awash with liquidity. But a government that failed to hedge its hydrocarbon wealth against a price drop is now cutting public spending and tightening trade finance rules, driving private banks to rethink their business strategy. Richard Nield reports.

A plunge in oil prices has brought uncertainty to Algeria's banking sector, which is facing declining profitability and tightening liquidity, leading to calls for far-reaching reforms.

With oil and gas output diminishing, Algeria is desperate to diversify its economy and avoid a continued slide towards unsustainable fiscal deficits. The country’s political stability hinges on whether or not it succeeds.

Arab banks offset the turmoil of the Arab Spring and offered a robust performance in 2011 with impressive growth across the key financial indicators. And with minimal exposure to the eurozone crisis, the region's banks are expected to continue their recovery from the global financial crisis.

Algeria's mid-year budget has further restricted the activities of foreign banks and businesses in the country, while shoring up regulations for domestic banks. Writer Richard Nield