Investor protection and the legal environment have a positive impact on bank financing in the GCC countries

A scientific study conducted at the University of Bahrain found that the political stability and investor protection indexes increase banks’ loans in the GCC region and the degree of diversification of banks’- loan portfolios.

The thesis – supervised by Dr. Medi Milli, an Associate Professor at the Department of Economics and Finance at the University, titled “Impact of Investor Protection and Institutional Environment on Bank Loan Portfolio Management in the GCC Region”. Shaikha Abdulla Khalifa, a master’s student in the Economics and Finance Department, submitted the thesis in partial fulfilment of the requirements for the Master of Business Administration degree.

The study aimed to identify the association between Investor protection and the structure of bank loan portfolios in the GCC region.

The study reviewed the impact of institutional environment factors, political stability, and investor protection on the management of bank loan portfolios. She also reviewed whether legal reforms in corporate governance and creditors’ rights positively affect bank loan decisions in the region. The researcher used the annual data of conventional banks in the GCC countries covering the years 2004 to 2018.

The research method studied the impact of both the investor protection and the institutional environment on the management of bank loans, the formation of credit bank portfolios, and the diversification of bank loan portfolios.

The study results showed that the institutional environment factors had strongly influenced total loans and less on bank loans for one and five years. The political stability index and the credit index show it has a positive effect on total loans, while the government efficiency index shows a low moral impact on it. Solving the bankruptcy problem has a statistically significantly higher impact on the growth of one-year and five-year loans to banks than on total loans. While the regulatory quality did not affect the total loans.

The researcher added that the settlement of insolvency and shareholder rights has a positive significance and statistical significance, showing that when investors invest more in the GCC region, the demand for the loan also increases, which proves that the rules for investor protection can affect the rate of loan growth and composition of the loan portfolio.

The study provided evidence related to the impact of investor protection and institutional environment on bank loan strategy in GCC countries. The evidence will help stakeholders and future investors to make their investment decisions and support the government and bank policymakers in monitoring monetary policies and projections.

The discussion committee comprised Dr. Medi Milli, an Associate Professor at the Department of Economics and Finance, College of Business Administration at the University of Bahrain, as a supervisor, and Dr. Mohammad Abouelseoud, an Associate Professor at the Department of Economics and Finance, College of Business Administration at the University of Bahrain, as an internal examiner, and Dr. Fuad Kreishan, an Associate Professor at Al-Hussein Bin Talal University in Jordan as an external examiner.