Quarterly Publication

Document Type : Original Article

Authors

1 Ph.D Student, Management and Economy Faculty, Islamic Azad University, Science and Research Branch, Tehran, Iran.

2 Professor, Management and Economy Faculty, Islamic Azad University, Science and Research Branch, Tehran, Iran.

3 Assistant Professor, Economic Department, Allameh Tabataba'i University, Tehran, Iran

4 Assistant Professor, Economy Faculty, Islamic Azad University, Science and Research Branch, Tehran, Iran.

Abstract

It is generally believed that macroeconomic and financial performance in oil exporting countries is interlinked to oil price movements. Regarding that assumption, the present study aims to examine the impact of oil price movements on bank nonperforming loans (NPLs) ,as a criterion for evaluation of bank credit risk, by applying the Generalized Method of Moments (GMM) on data from 18 Iranian banks data over period 2006–2017. The result of the estimated model indicates that there is a significant relation between fluctuations of oil price and bank nonperforming loans; accordingly, any decrease in the price of oil will result in an increase in bank nonperforming loans. Also, in order to have comprehensive assessment, economic and bank specific control variables were used in the model. Findings show that the NPLs ratio increases as economic growth decreases and exchange rate and real interest rates rise. Among bank specific factors, equity ratio as a criterion for efficiency and loan growth has a negative effect on NPLs, but by raising bank industry concentration, credit risk and financial stability can be threatened. Thus, the reliance of oil rich economies on oil incomes leads to the linkage of oil prices, and macroeconomic and financial performance. Therefore, the result of this study will be useful in adapting and diversifying macroeconomic policies in the face of drastic changes in oil prices and mitigating its adverse effects.

Keywords

Main Subjects

Ajlafi, M. (2013). Investigating the relationship between Concentration and Financial Stability of Banks in Iran. MA Thesis, Iran Banking Institute (In Persian).
Al-Khazali, O.M., Mirzaei, A.(2017).The Impact of oil price movements on bank nonperforming loans: global evidence from oil-exporting countries, Journal of Emerging market Review, vol. 31, pp. 193–208.
Atkeson, A. and Kehoe, P.J., (1999). Models of energy use: putty-putty vs. putty-clay. American Economic Review 89, 1028–1043.
Ayadi, O.F., (2005). Oil price fluctuations and the Nigerian economy. OPEC Review 29, 3, 199–217.
Berger, A.N.; DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. J. Bank. Finance, 21, 849–870.
Bernanke, B., Gertler, M. and Watson, M., (1997). Systematic monetary policy and the effect of oil price shocks. Brooking Papers on Economic Activity 1, 91–142.
Berument, M.H., Ceylan, N.B. and Dogan, N., (2010). The impact of oil price shocks on the economic growth of selected MENA countries. The Energy Journal 31, 1, 149–176.
Blundell, R.; Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. J. Econometrics. 87, 115–143.
Bruckner, M., Ciccone, A., Tesei, A., 2012. Oil price shocks, income and democracy. Review of Economics and Statistics 94 (2), 389–399. 
Chang, E.J., Guerra, S.M., Lima, E. J. A. and Tabak. B. M. (2008). The stability-concentration relationship in the Brazilian banking system. International financial markets, Inst. And Money, 18, 388–397.
Dayanandan, A., Donker H. (2011). Oil prices and accounting profits of oil and gas companies. International Review of Financial Analysis 20 (5), 252–257.
Diamond, D. W. (1991). Monitoring and reputation: the choice between bank loans and directly placed debt. Journal of Political Economy, 689–721.
Eggoh. J, Bangake, CH, (2011), Energy consumption and economic growth revisited in African countries, Article in Energy Policy.
Elyasiani, E., Mansur, I., Odusami, B. (2011). Oil price shocks and industry stock returns. Energy Economics 33 (5), 966–974.
Esmaeil Nia, A., Shafiee, S. (2009). Assessment the differences between the effects of the recent rise in oil prices and the shocks of the 1970s. Journal of Economic Research and Policies, 17(50), 53–76.
Espinoza, R.A.; Prasad, A. (2010). Nonperforming loans in the GCC Banking System and Their Macroeconomic Effects. IMF Working Papers
Hamilton, J.D. (1996). This is what happened to the oil price–macroeconomy relationship. Journal of Monetary Economics, 38, 215–20.
Hamilton, J.D. (2003). What is an oil shock? Journal of Econometrics, 113, 363–98.
Hamilton, J.D. and Herrera, A.M. (2004). Oil shocks and aggregate economic behavior: the role of monetary policy, Journal of Money, Credit and Banking, 36, 265–86.
Harris, E.S., Kasman, B.C., Shapiro, M.D. and West, K.D. (2009). Oil and the macroeconomy: lessons for monetary policy. U.S. Monetary Policy Forum Report.
Hassan. S.A, Nosheen. M, (2019), Estimating the Railways Kuznets Curve for high income nations A, GMM approach for three pollution indicators, Energy Reports 5 (2019) 170–186.
Heidari, H., Zavarian, Z., and Noorbakhsh, A. (2011). Investigating the effect of macroeconomic indicators on banks' nonperforming loans, Journal of Economic Research, 11(1), 43–65.
Henriques, I., Sadorsky, P., (2008). Oil prices and the stock prices of alternative energy companies. Energy Economics 30, 998–1010.
Herrera, A.M. and Pesavento, E. (2009). Oil price shocks, systematic monetary policy, and the “Great Moderation” .Macroeconomic Dynamics, 13, 107–37.
Husain, A.M., Tazhibyeva, K. and Ter-Martirosyan, A., (2008). Fiscal policy and economic cycles in oil-exporting countries. IMF, Working Paper.
Jesus, S.; Gabriel, J. (2006). Credit cycles, credit risk, and prudential regulation. Int. J. Cent. Bank. 2, 65–98.
Kaminsky, G.L.; Reinhart, C.M. (1999). The twin crises: The causes of banking and balance-of-payments problems. Am. Econ. Rev., 89, 473–500.
Khandelwal, P.M Miyajima, K., Santos, A. (2016). The Impact of oil prices on the banking system in GCC. IMF Working Papers. 2016.
Khermraj, T., Pasha, S. (2009). The determinants of nonperforming loans: An econometric case study of Guyana. Munich Personal Repec Archive. 1–26. Available at: https://mpra.ub.unimuechen.de
Kilian, L. (2008). The economic effects of energy price shocks, Journal of Economic Literature, 46, 871–909.
Kiviet, J., Pleus, M., Poldermans, R., 2017. Accuracy and efficiency of various GMM inference techniques in dynamic micro panel data models. Econometrics 5 (1), 14.
Klein, N. (2013). Nonperforming loans in CESEE: Determinants and impact on macroeconomic performance. IMF Working Papers.
Kourani, H. (2013). Effect of Oil shock on banks’ profitability in oil producer countries. Master’s dissertation. Islamic Azad University Tehran Branch
Louzis, D.P.; Vouldis, A.T.; Metaxas, V.L. (2012). Macroeconomic and bank-specific determinants of nonperforming loans in Greece: a comparative study of mortgage, business and consumer loan portfolios. J. Bank. Finance, 36, 1012–1027.
Matutes, C., and Vives, X. (2000), Imperfect competition, risk taking and regulation in banking, European Economic Review. 44, 1–34.
Mehrabi, L. (2013). Assessment of bank nonperforming in the Iranian Banking System and Comparing with Other Countries: A review of the Experiences of Other Islamic Countries. (Research Report). Tehran; Monetary and Banking Research Institute.
Mehrabi, l. (2014). Assessing the Status of Nonperforming loans ratio in the Iranian Banking System and comparing it with Other Countries: A Review of the Experiences of Other Islamic Countries. (Research Report). Tehran; Monetary and Banking Research Institute
Mishkin, F. (2012). The economics of money, banking and financial markets. (10th). United States of America: Pearson.
Mohammadi, T., Eskandari, F., Karimi, D (2016). The Effect of macroeconomic variables and special banking characterics on nonperforming loans in Iranian banking system. Journal of Economic Research, 16(62), 81–101.
Moshiri, S., Nadali, M. (2013). Identifying effective factors on Banking Crisis in Iranian Economy. Journal of Economic Research (Islamic-Iranian Approach), 13(48), 1–27.
Nazariyan, R., Golzarian pour, S. and MoradPour, M. (2017). The Relationship between Financial Stability and Concentration in Iran’s Banking System. Quarterly Journal of Economics and Modeling Shahid Beheshtei University. 7(28), pp. 108–137.
Nili, F., Mahmudzadeh, A. (2014). Bank Nonperforming Loans or Toxic Bank Asset (Research Report). Tehran; Monetary and Banking Research Institute.
Nkusu, M. (2011). Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies. IMF Working Papers.
Norouzi, P. (2013). The impact of macroeconomic variables on credit risk of banks in Iran. Journal of Monetary Research-Bank, 7(20), 237–257.
Pashaei Fam, R., Pazoki, M., and Amirkhani, P. (2013). Explanation and analysis of the effect of OPEC oil price fluctuations on inflation of selected OECD countries. Journal of Economic Development Research, 3(9), 89–116.
Sadorsky, P. (2008). Assessing the impact of oil prices on firms of different size: Its tough being in the middle. Energy Policy 36(38),54–61.
Sadorsky, P., (2004). Stock markets and energy prices. Elsevier, New York. Encyclopedia of Energy 5, 707–717.
Salimi, F.M Akhondzadeh, T., and Samei, Gh. (2013). Generalized Method of Moments Model for Panel Data and Sagan Test. First International Conference on Political and Economic Epic.
Samadi, S., Yahyabadi, A., and Nasabadi, H. (2009). Relationship between oil shocks and economic growth in OPEC member countries: is this a symmetrical relationship? Journal of Energy Economics Studies, 17(52), 5–26.
Shahchera, M., Keshishian, L. (2014). The simultaneous effect of banking concentration and monetary policy on credit channels in Iranian banking system. Journal of Monetary and Banking Research. 7(19), 27–50.