IMPACT OF MONETARY POLICY, LIQUIDITY RISK AND CREDIT RISK ON FINANCIAL STABILITY OF SAUDI BANKS

Abstract

This paper examines the financial stability of Saudi banks to determine if bank type makes any difference when testing the impact of monetary policy, credit risk, and liquidity risk on banks’ financial stability (FS). The study focuses on data of 11 banks including seven conventional and four Islamic banks during the period from 2016-2019. The financial stability of a bank is used as a dependent variable (DV) measured by z-score and ROA, while independent variables (IVs) include monetary policy, credit risk, and liquidity risk. The findings of this paper indicate that out of the three IVs only liquidity risk was found to be statistically significant, both monetary policy and credit risk did not significantly influence the FS of Saudi banks. Based on bank type, only credit risk was found to differ significantly between Saudi Islamic and conventional banks.