Banks’ Financial Stability and Macroeconomic Key Factors in GCC Countries

Hashed Mabkhot () and Hamid Abdulkhaleq Hasan Al-Wesabi ()
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Hashed Mabkhot: Saudi Investment Bank Scholarly Chair for Investment Awareness Studies, The Deanship of Scientific Research, The Vice Presidency for Graduate Studies and Scientific Research, King Faisal University, Al-Ahsa 31982, Saudi Arabia
Hamid Abdulkhaleq Hasan Al-Wesabi: Islamic Business School, University Utara Malaysia, Sintok 06010, Kedah, Malaysia

Sustainability, 2022, vol. 14, issue 23, 1-21

Abstract: Purpose: This study examines the impact of macroeconomic factors on GCC banks’ stability. As GCC countries still rely on oil export revenues to cover government expenses and perform an undiversified economy, hence, increased awareness of the financial diversifications in the GCC financial sectors is needed to contribute alongside oil sector revenues and then improve the non-oil sectors’ investments in order to eliminate the oil and macro-financial linkage that causes any changes in the oil price to impact the whole macroeconomic and financial system of the country. In this context, this research selected the most important macroeconomic factors such as GDP growth, inflation rate, exchange rate, global financial crisis period (2008/2009), oil price fluctuation, and political instability within the period from 2005 to 2020, which covers many economic and political events. Design/methodology/approach: We used panel cointegration analysis, starting with a panel unit root test and including PFMOLS and PDOLS estimations. Additionally, FGLS estimation was used due to the existence of heteroskedasticity and auto-correlation in the sample. Findings: The findings suggest that there is an adverse relationship between the inflation rate, global financial crisis (2008/2009) and oil price changes, and the financial stability of GCC Islamic and conventional banks. However, the Islamic bank is less adversely affected by a financial crisis, oil price changes, inflation rate and political instability. Originality/value: This proposed model provided better knowledge for regulators and policymakers about the external impacts on GCC banks’ stability, to commit an appropriate economic policy to help in reforming the economic and financial imbalances.

Keywords: banks’ financial stability; macroeconomic variables; banking system (Islamic and conventional banks); GCC countries (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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