Oil Prices and Bank Profitability: Evidence From Major Oil-Exporting Countries in the Middle East and North Africa
International Monetary Fund, Oct 1, 2009 - Business & Economics - 23 pages
This paper analyzes the relationship between oil price shocks and bank profitability. Using data on 145 banks in 11 oil-exporting MENA countries for 1994-2008, we test hypotheses of direct and indirect effects of oil price shocks on bank profitability. Our results indicate that oil price shocks have indirect effect on bank profitability, channeled through country-specific macroeconomic and institutional variables, while the direct effect is insignificant. Investment banks appear to be the most affected ones compared to Islamic and commercial banks. Our findings highlight systemic implications of oil price shocks on bank performance and underscore their importance for macroprudential regulation purposes in MENA countries.
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2nd order AC AC test p-value affect bank profitability Annual growth Deviation Athanasoglou Bahrain bank performance Blundell and Bond Capitalization is modeled country-specific variables credit risk Demirguc-Kunt and Huizinga Descriptive Statistics determinants of bank Deviation from average Deviation from Hamilton endogenous variable Estimations are performed Fiscal stance forward rate Bank-speciﬁc global financial crisis Herfindahl index HP filter oil impact of oil indirect channel inefficiency inﬂation institutional development investment banks Islamic banks Kuwait levels liquidity macroeconomic Model specification Number modeled as endogenous Molyneux and Thornton Number of obs oil price shocks oil shock forward oil-exporting countries OIR p-value omitted variable bias order AC test panel data performed using Blundell predetermined variable prices and bank Qatar relationship between oil reported in Table returns on assets risk as predetermined robust GMM estimator Shariah shock forward rate shocks on bank suggests that oil system robust GMM test of OIR United Arab Emirates variables ROA lagged Yemen