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.
Authors
Assil El Mahmah
Economic Advisor, Ministry of Economy and Planning...
Research Fellows
Mohamed Trabelsi
Senior Economist, International Monetary Fund Middle East...