The Impact of Non-Traditional Banking and National-level Governance on Banking Performance: Evidence from the GCC Region.

Abstract

This thesis empirically investigates the impact of non-traditional banking activities (NTBAs), income diversification, and national governance on bank performance within the Gulf Cooperation Council (GCC) region, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The GCC presents a unique context due to its monarchical system of government, dependency on oil revenue, restricted democratic governance, and hybrid institutional characteristics, including high state ownership and the coexistence of Islamic and conventional banks. These features offer a crucial perspective for examining how banking strategies and governance frameworks affect banking performance in emerging markets. The study is theoretically grounded in financial intermediation theory, modern portfolio theory, and institutional theory. It adopts a multi-method approach: the literature review chapters utilise bibliometric and content analysis to map and evaluate the NTBAs and GCC banking literature, while the empirical chapters employ fixed effects panel regression, marginal effects, and margins plots using an unbalanced panel dataset of 94 GCC banks spanning 2012–2022. The findings indicate that increased dependence on NTBAs enhances profitability, however, simultaneously elevates insolvency risks. In addition, income diversification, both across interest and non-interest streams and across various non-interest streams, does not consistently improve performance. Conversely, it may increase operational complexity and risk, particularly in institutions with limited regulatory or management capacities. These results challenge the fundamental assumptions of modern portfolio theory. The thesis also finds that strong control of corruption consistently improves all dimensions of bank performance, whereas political stability only enhances asset quality and may reduce stability if not coupled with effective anti-corruption mechanisms, echoing Olson’s theory of institutional sclerosis. This study offers multiple significant contributions. It establishes an integrated framework connecting bank-level diversification with national governance in a distinct institutional context. It contests traditional theoretical assumptions by exposing context-dependent trade- offs between profitability and risk. Finally, it provides policy-relevant insights for formulating governance-aligned, region-specific banking strategies in resource-dependent and transitional economies.