Efficiency of Performance of Banks in the Gulf Region Before, During and After Crises (Financial and Political)

Only a few cross-country empirical studies have been conducted to measure the performance of commercial banks especially before, during, and after crises (financial or political). This study makes an attempt to fill the gap in the literature by investigating the impacts of crises on Gulf Corporate Council (GCC) commercial banks’ performance over the period 1997-2007. The rationale behind this selection is that the GCC countries within this period witnessed two major crises: a political crisis (the second Gulf war) and a financial crisis (the current global crisis). Clearly, it is important that a manager recognizes the best bank policy in the face of each crisis that could help both bankers and regulators in managing these crises. Also, the banking system within GCC countries comprises two different operating banking systems, Islamic and conventional. As both are operating in similar environments, it is of interest to examine whether one can make judgments concerning the success of their competitive strategies, and other management-determined factors by using performance measures. Two different evaluation methods are computed to measure bank performance: data envelopment analysis (DEA), and classification and regression tree (CART). The overall results show that conventional banks perform well during a political crisis, whereas Islamic banks performed better during the financial crisis. However, this difference is not statistically significant, which means that GCC commercial banks can be equally competitive when it comes to technical efficiency. Also, there is no statistically significant relationship between bank geographical location and its efficiency score. Moreover, the results confirm that large and small size GCC commercial banks are more efficient than medium-sized banks. Out of the 24 environmental factors included in the study to investigate the relationship between environmental factors (internal and external) and bank performance, only 15 factors are considered to be important in predicting fully-efficient banks. © Author