The impact of oil price movements on bank non-performing loans: Global evidence from oil-exporting countries

Abstract

It is generally believed that economic and financial performance in oil-rich countries are interlinked to oil price movements. On this assumption, we consider whether oil prices shocks have any impact on bank non-performing loans (NPLs), and if so, whether the effect is homogenous across banks. This paper addresses these questions by applying a dynamic GMM model on data from 2310 commercial banks in 30 oil-exporting countries over the period 2000–2014. Three main results emerge. First, changes in oil prices do have a significant impact on bank NPLs: A rise (fall) in oil prices is associated with a decrease (increase) in NPLs. Second, oil prices shocks have asymmetric effects on bank problem loans, with negative oil price movements generally have a greater impact than positive oil price movements. Third, the unfavourable impact of adverse oil prices shocks on the quality of bank loans tends to be more pronounced in large banks. Overall, these robust results favour the adaptation of appropriate macroprudential policies and diversification of the economy, in order to mitigate the adverse impact of oil prices shocks.