Assessing Banking Sector Vulnerabilities in the Gulf Cooperation Council in the Wake of COVID-19

Abstract

A macro-financial model has been used to identify the determinants of banks’ holding of government securities during the crisis. A panel regression analysis shows the variation in banks’ holding of government securities as a function of: (1) macroeconomic variables (the policy rate, real non-oil GDP growth and inflation); (2) proxy for the availability of alternative lending opportunities (lending to the private sector); and (3) proxies for alternative investment opportunities (investment in the stock markets). The model is given by: Public GDP, NEER Number of listed companies, COVID-19 Government Response Index) . COVID-Government constant term is the coefficient not