The impact of the recent oil price decline on the GCC banking system

Abstract

Purpose – The purpose of this thesis is to determine the impact of the recent oil price decline on the GCC banking system. Design/methodology/approach – The econometric Chow model is used to test for structural breaks in the performance of selected sample GCC banks (Saudi, UAE, and Qatar banks) upon the occurrence of the recent oil price decline at the various aspects of bank performance (profitability, liquidity, credit quality, and capitalization). Findings – While Qatar banks are found to be resilient showing continuous performance over time, the Saudi and UAE banks are found to be significantly impacted by the decline experiencing negative structural breaks at the credit quality level but positive breaks at the capitalization level. However, UAE banks are found to have also experienced negative breaks at the profitability level. Research limitations/implications – One limitation derives from the fundamentals of the Chow test as it allows studying the impact of only one variable (time) on bank performance. Another limitation derives from the limited data availability for some GCC banks. However, the study contributes to the increasing efforts to fill a research gap identified in the literature investigating the impact of oil price shocks on bank performance in oil exporters. Practical implications – The study provides GCC bank authorities with valuable insights about what bank aspects could be negatively impacted in the event of negative oil price shocks and what aspects could help mitigate the impact. This helps authorities introduce necessary changes and preventive actions to better absorb future shocks. Originality/value – This study is the first to apply the Chow model to determine the impact of the recent oil price decline on the GCC banking system.