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

Abstract

ABSTRACT This paper applies the econometric Chow test to determine the impact of the recent oil price decline on the GCC banking system for the period 2011–2017. Structural breaks in the performance of selected sample GCC banks, Saudi, UAE, and Qatar banks, are tested upon the occurrence of the recent oil price decline in 2014 for different aspects of bank performance: profitability, liquidity, credit quality, and capitalization. While Qatar banks are found to be resilient showing continuous performance over time, the Saudi 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 experienced negative breaks at the profitability, credit quality, and capitalization levels. The paper provides GCC banks 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 banks introduce necessary changes and preventive actions to better absorb future shocks.