How foreign and domestic ownership influenced risk-taking in GCC banks

This study investigates the relationship between ownership structure (foreign and domestic) and bank risk-taking over the period 2014-2022. The analysis includes 66 banks operating in the GCC, divided into 44 domestically owned, and 22 foreign-owned banks. The research examines the relationship across two distinct periods: the pre-pandemic and the COVID-19 pandemic era, using the two-stage least squares (2SLS) method, and panel data techniques for robust analysis. The findings reveal that, in both periods, foreign-owned banks exhibited lower credit risk, greater cost efficiency, and less risk-taking compared to domestic counterparts. Domestic banks, while maintaining profitability, relied heavily on capital absorbency, which resulted in elevated credit risk and operational inefficiencies. These inefficiencies, observed among domestic banks, stem from inadequate monitoring of borrowers' information and the occurrence of moral hazard. Foreign banks played a crucial role in supporting banking sector stability, as their presence enhanced the GDP growth. The results are in line with the "global advantage hypothesis".