The Impact of Oil Prices on the Banking system in the Gulf Cooperation Council

Miyajima, Ken and Khandelwal, Padamja and Santos, Andre (2017): The Impact of Oil Prices on the Banking system in the Gulf Cooperation Council. Published in: Journal of Governance and Regulation , Vol. 6, No. 2 (2017): pp. 32-47.

Abstract

This paper examines the links between global oil price movements and macroeconomic and financial developments in the Gulf Cooperation Council (GCC). The GCC economies can be adversely affected by low oil prices due to their high dependence on oil and gas exports and macro-financial linkages which can amplify the effects of oil price movements over the financial cycle. Historically, systemic financial sector risks rose in the GCC countries with the oil price upswing in the years before the global financial crisis. Against this background, a range of multivariate panel approaches, including a panel vector autoregression approach, were applied to macroeconomic and bank-level data covering the six GCC economies and span 1999–2014. The paper finds strong empirical evidence of feedback loops between oil price movements, bank balance sheets, and asset prices. Empirical evidence also suggests that bank capital and provisioning have behaved countercyclically through the cycle. That is, these ratios increase during good times. This has helped strengthen the resilience of the financial system to the oil price decline since mid-2014.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banking System, Counter-Cyclical Provisions, Macro-Financial Linkages, Nonperforming Loans, Oil Prices, Panel Vector Autoregression
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

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