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Diversification and bank stability in the GCC

Bana Abuzayed, Nedal Al-Fayoumi and Philip Molyneux ()

Journal of International Financial Markets, Institutions and Money, 2018, vol. 57, issue C, 17-43

Abstract: This study examines bank diversification strategies and links to financial sector stability. Using a sample of listed and unlisted banks operating in the Gulf Cooperation Council (GCC) countries over 2001 to 2014 we investigate the diversification features of conventional and Islamic banks. Our main finding overall is that income or asset diversification does not enhance bank stability. However, there is evidence of a non-linear relationship between non-interest (non-financing) income and stability indicating that banks are able to reduce risk at higher levels of diversification. Conventional banks appear to be more adversely impacted on the risk side than Islamic banks. We also find that factors such as improved institutional quality, macroeconomic conditions, and other bank-specific factors motivate greater stability.

Keywords: GCC; Diversification; Stability; Islamic banking (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.intfin.2018.04.005

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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