The project (Pilot) is funded by Harvard Kennedy School with the support of Ministry of Labor and Social Development.

The Gulf Cooperation Council (GCC) countries are expected to undergo a prolonged period of fiscal adjustments as oil price continues to decline. This study examines how profits of GCC banks are affected by fiscal imbalances across the region. Using various panel regressions, I control for bank specific variables, namely credit growth and risk taken, and I examine the response of GCC banking profits to larger fiscal deficits, higher public debt to GDP ratios, lower international oil prices, and slower non-oil GDP growth.

This paper assesses the effect of the recent 2014–2015 oil price slump on the financial stability in the Gulf Cooperation Council (GCC) region. The first objective of this paper is to assess how oil price shock propagates within the macroeconomy and how the macro shocks transmit to GCC banks’ balance sheets. This part of the paper implements a System Generalized Method of Moments (GMM) and a Panel Fixed Effect Model to estimate the response of nonperforming loans (NPLs) to its macroeconomic determinants.