Financial Liberalization and Bank Performance in GCC Countries: A Quantile Regression Analysis

The banking sectors of Gulf Cooperation Council (GCC) countries have undergone significant financial reforms in recent decades. These reforms include the deregulation of financial markets, privatization of state-owned banks, and increased openness to foreign competition. While these liberalization efforts aim to enhance banking efficiency and attract foreign investment, they also introduce new risks and uncertainties, raising concerns about their overall impact on bank performance. This study investigates the effects of financial liberalization on the performance of banks operating in GCC countries. To achieve this, we analyze a panel dataset of GCC banks using quantile regression across five quantiles (10th, 25th, 50th, 75th, and 90th percentiles). This approach allows for a nuanced understanding of how liberalization affects banks at different performance levels. The findings reveal a consistent negative relationship between financial liberalization and return on assets (ROA) across all quantiles, with more significant adverse effects observed among the most profitable banks. These results indicate that while liberalization has facilitated growth and modernization in the banking sector, it also puts downward pressure on profit margins due to intensified competition and increased exposure to external market shocks. The study concludes that robust regulatory frameworks are essential to mitigate the risks associated with liberalization and ensure the long-term stability of the banking sector in the GCC region.