The Asymmetric Effects of Oil Price Shocks on Bank Credit Risk in Iran

Abstract

Oil price shocks have an undesirable effect on financial stability and banking systems, in addition to creating uncertainty and negative effects on the macroeconomic performance of oil-exporting countries. In fact, the dependency of government spending policies on oil price movements in oil exporting countries creates feedback loops between asset prices and bank credits that could lead to an increase in vulnerability of the financial sector. Therefore, considering the importance of the issue, this study aims to investigate the asymmetric effects of oil prices on non-performing loans (NPLs), as credit risk criteria, by applying data from 18 selected banks in Iran during 2006-2017. In this regard, the relationship between variables has been estimated using Panel Nonlinear Autoregressive Distributed Lag (PANEL NARDL). The predictability of symmetric and asymmetric PANEL ARDL models is assessed by applying RMSE and Campbell and Thompson (2008) tests. The results show that the asymmetric model has better performance and efficiency than the symmetric model. These asymmetric effects are significant in both short-term and long-term. Based on the results, the impact of oil price on the NPLs of some banks is positive and in the others is negative and significant.

Keywords

• panel nardl
• asymmetric effects
• oil prices
• nonperforming loan of banks