Journal of Applied Finance & Banking

Using Financial Disclosures to Evaluate the Risk Profile of Large GCC Banks

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• Abstract

  This paper evaluates the risk disclosure made by GCC banks based on the belief that the information they release is meaningful to investors, regulators, and market participants. We researchers assess how well their disclosure captures variation in risk exposure, across banks and over time. We find that both the Core Capital and Market Risk Capital Ratios are key indicators. Specifically, these ratios contain information not reflected in at least fivetraditional risk metrics about the size of a bank (1) trading account, (2) derivatives positions (3) Value-at-Risk, (4) individual risk components (credit, market and operational), and (5) volume of risk-weighted assets. These observations lead us to conclude that disclosing these ratios adds transparency to GCC banks because their level is both informative and meaningful to evaluate risk across banks and over time.This paper complements and reinforces current supervisory efforts in the GCC to foster safe and sound institutions and a stable banking system.