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How does oil price uncertainty affect the stability of conventional and Islamic banks in major oil-exporting countries? Evidence from the GCC region

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  • Alsharif, Mohammad

Abstract

This study investigates whether oil price uncertainty has different effects on the default risk of Islamic and conventional banks in major oil-exporting countries. Using a dataset of 61 banks from the Gulf Cooperation Council (GCC) countries, we examine the impact of the Oil Price Uncertainty Index (OPUI), a new forward-looking text-based uncertainty measure created by Abiad and Qureshi (2023). The results suggest that conventional banks are more vulnerable to higher oil price uncertainty, while this relationship does not exist for banks that adhere to Islamic finance principles. This provides an opportunity for investors to hedge against the region's systemic risk.

Suggested Citation

  • Alsharif, Mohammad, 2024. "How does oil price uncertainty affect the stability of conventional and Islamic banks in major oil-exporting countries? Evidence from the GCC region," Finance Research Letters, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011905
    DOI: 10.1016/j.frl.2024.106161
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    More about this item

    Keywords

    Bank stability; GCC banks; Islamic banks; Oil price uncertainty; GMM; LSDVC;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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