The Effect of Oil Price Changes on Bank Profitability

Document Type : Research Paper

Authors

1 Professor of Faculty of Economics, Al-Zahra University

2 Associate professor at Alzahra University

3 Master of Science (Economics), Al-Zahra University

Abstract

This paper analyzes the relationship between oil price shocks and bank profitability, using data from 88 banks in 11 oil-exporting MENA countries for 2006-2012. The dependent variable is the return on assets, measured as the ratio of bank profits to total assets. and the independent variables include bank-specific, and country-specific variables, and oil price changes. We test the hypotheses of direct and indirect effects of oil price shocks on bank profitability via a dynamic panel method (system GMM). Our results indicate that oil price changes have direct impact on bank profitability. To differentiate the impact of oil price shocks on banks with different organizational structures we introduce interaction terms for oil price with commercial, Islamic, and investment banks. Our results indicate that Islamic banks appear to be the only affected ones by oil price shocks.

Keywords

References

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