This research aims to conduct an in-depth analysis of the decisive impact of interest rate sensitivity on asset quality in Gulf Cooperation Council (GCC) banks, exploring this relationship within a volatile economic environment characterized by rapid fluctuations in interest rates. The fundamental research problem lies in understanding the mechanisms through which interest rate fluctuations and banks' classification of their sensitivity to these fluctuations affect the quality of their core asset portfolios, particularly loans and investments, and the resulting potential challenges to banks' financial stability. To achieve this objective, the research focuses on a population comprising 40 commercial banks listed on major stock exchanges in GCC countries (Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates-Dubai). A purposive sample of 12 banks was selected, representing 30% of the population, with data analysis conducted over a full decade from 2013 to 2023. The research reached a pivotal conclusion confirming that banks' sensitivity to interest rate fluctuations is not merely an important factor, but rather a principal and statistically significant determinant of their asset quality, where asset quality is directly affected by the extent of the bank's exposure to these risks. Based on these fundamental findings, the research recommends that banks in the region adopt more sophisticated and proactive strategies for interest rate risk management that extend beyond traditional hedging to include continuous restructuring of asset portfolios and enhancement of internal assessment mechanisms for credit and investment quality, with the aim of maintaining asset resilience and strength in facing market volatilities, thereby strengthening the overall banking sector's robustness.
Al-Mziri et al. (Mon,) studied this question.