ERF 27th Annual Conference

Banks’ Performance Amid Oil Price Shocks: Empirical Evidence from GCC Countries, 2002-2017

No.

ERF27_49

Publisher

ERF

Date

May, 2021

Topic

G3. Corporate Finance and Governance

E5. Monetary Policy, Central Banking, and the Supply of Money and Credit

C3. Multiple or Simultaneous Equation Models

G2. Financial Institutions and Services

The paper explores empirically the factors influencing banks’ performances amid oil price fluctuations, using the GMM approach for a sample of GCC banks over the period 2002-2017. Five main results are found in this investigation. First, oil prices have significant effects on banking performance, and their adverse effects on aggregate fluctuations ultimately tend to affect financial institutions’ performance. Second, it is difficult for undercapitalized, and illiquid banks to improve their performance compared to large and well-capitalized banks in presence of oil price volatility. Third, Islamic banks have managed to sustain their lending growth, while conventional banks are more focused on maximizing returns, and taking high credit risk than Islamic banks. The difference in the business models makes conventional banks more vulnerable to oil price decline compared to Islamic ones. Fourth, State ownership tends to have a positive effect on bank performance, as it eases constraints on banks’ borrowing and boosts confidence in the outlook. Finally, banks with greater risk-appetite increase their lending but their profits remain more sensitive to oil price volatility.
Banks’ Performance Amid Oil Price Shocks: Empirical Evidence from GCC Countries, 2002-2017

Authors

Assil El Mahmah

Economic Advisor, Ministry of Economy and Planning...

Banks’ Performance Amid Oil Price Shocks: Empirical Evidence from GCC Countries, 2002-2017

Authors

Mohamed Trabelsi

Senior Economist, International Monetary Fund Middle East...