The Effect of Financial Derivative use on the Performance of Commercial Banks: Empirical Study in GCC Countries during 2000-2013

Abstract

The commercial banks are working on innovative ways to achieve profits instead of traditional methods, and hedging of systemic risks by using financial derivatives because of the uncertainty and high volatility in the global and domestic financial markets especially in Golf Cooperation Council “GCC” countries. In this paper we investigated the effect of financial derivatives use on the performance of commercial banks in the “GCC” countries, where the study included nineteen banks distributed among the countries (Bahrain, Emirate, Qatar and Saudi) during the period 2000-2013, using the regression model with unbalanced panel data. We concluded the acceptance of dual fixed effects model shows that the relationship varies from one bank to another, due to the different characteristics of each bank and each country. That the use of derivatives is working on the reduction of no systemic risks, which improves the performance of commercial banks especially in the crisis period.

Keywords: commercial banks, Banking Performance, GCC country, Panel data.

JEL Classification: C3; G32; M41.