A Systemic Risk’s Effect on the Stability of the Banking Sector: Evidence from Saudi Arabia




Systemic Risks, Interest rate, Inflation, Political instability, ARDL


The banking sectors are exposed to a lot of pressure due to the events taking place in the region, the most important of which is the decline in global oil prices and geopolitical events that led to political instability in the Middle East. This paper aims to study the macroeconomic variables that could be potential sources of systemic risks and to test their impact on the stability of the banking sector in the Kingdom of Saudi Arabia (1984-2020), using the ARDL approach of Co- integration and stability testing. In light of the economic theory and literature, systemic risks were identified by fluctuations in oil prices, interest rates, inflation and political instability as independent variables. The results showed a significant positive effect of oil prices and inflation on the banking sector's total assets and total deposits. In addition, the interest rate has a negative effect on total assets while positively affecting total deposits. Furthermore, political instability significantly affects the total assets of the banking sector during the Yemeni war, while there is insufficient evidence about its impact on total deposits.


2024-01-05 — Updated on 2023-12-31


How to Cite

Alshadadi, M. A., & Deshmukh, P. V. D. (2023). A Systemic Risk’s Effect on the Stability of the Banking Sector: Evidence from Saudi Arabia. Studies in Economics and Business Relations, 4(2), 54–72. https://doi.org/10.48185/sebr.v4i2.954 (Original work published January 5, 2024)