Banks play an important role in the country's economy, so increasing bank’s financial stability through the management of financial risks, including credit risk, is one of the most important factors in maintaining the stability of the economy. The mutual effect of credit risk and banking stability in 14 Iranian and 13 West Asian banks in period of 2012-2018 has been studied in this research using GMM approach. Findings show than both credit risk and bank stability have a mutual negative and statistically meaningful effect on eachother. Results also show that there is no meaningful difference between Iranian and West Asian banks about effect of credit risk on bank stability, but the negative impact of bank stability on Iraninan banks is greater. The results of this study can be used by banking sector policymakers to reduce credit risk and enhance bank stability.

British domination on Persian Gulf and discovery and exploitation of oil was a significant and fundamental factor in social changes of the region, so that the plentiful oil income, along with lack of native efficient forces, caused the attraction of foreign forces. In oil-rich countries of the Persian Gulf area, foreigners constitute between 60 to 90 percent of the labour force, and this problem is of more negative in fluence on societies which don't have an old civilization and culture such as Kuwait, Qatar, United Arab Emarates.