The Impact of Geopolitical Risks on Commercial Banks’ Profitability: Empirical Evidences from the GCC Countries

Abstract

The current study aimed to investigate the impact of geopolitical risks on the profitability of commercial banks for a sample of 39 commercial banks from the (GCC) Countries, relying on annual and balanced data (Panel Data) for the extended period of time (2007-2021), and by applying the corrected standard error estimation (PCSE) model, the results showed in general that all the explanatory variables used in this study can be considered reliably influential factors and are important indicators for predicting the profitability of commercial banks. Specifically, the results indicate that geopolitical risk (GPR) has a positive impact on the profitability of commercial banks, but this positive effect is weakened by the presence of economic policy uncertainty (EUP), as the results also reveal the interaction between geopolitical risks and economic policy uncertainty (EUP*GPR) has a significant negative impact on the profitability of commercial banks operating in the GCC countries. The study also came out with a set of recommendations, the most important of which were: Officials in commercial banks should highlight increased attention to the issue of their organizational capabilities, and adherence to international financial reporting standards, such as applying the international financial instruments standard (IFRS9) and applying Basel 3 standards, because these standards are of great importance in mitigating financial risks, and efforts should be made to boost the confidence of foreign investors in it.