The influence of foreign direct investment on banking stability in a dual banking system during the COVID-19 pandemic and the global financial crisis

Abstract

This study investigates the impact of foreign direct investment (FDI) on bank stability in the Gulf Cooperation Council (GCC) region, differentiating between Islamic and conventional banks. The results reveal a negative relationship between FDI and bank stability, and Islamic banks can mitigate this impact, enhancing overall stability. Notably, during recent crises (the global financial crisis (GFC) and the COVID-19 pandemic (COVID-19)), FDI's effect on bank stability intensified, and the GFC had a stronger influence than COVID-19. Islamic banks were more resilient to FDI during these crises, highlighting their pivotal role in strengthening the banking system across the member countries in the GCC. The study offers critical insights for regulators, policy makers, and risk managers, advising cautious supervision over FDI in order to preserve monetary and financial stability.

Keywords

• D81
• F21
• G01
• G21
• G32
• H12