Impact of International Oil Price Shocks and Inflation on Bank Efficiency and Financial Stability: Evidence from Saudi Arabian Banking Sector

Fathi Mohamed Bouzidi, Aida Arbi Nefzi () and Mohammed Al Yousif
Additional contact information
Fathi Mohamed Bouzidi: Department of Finance and Investment, Faculty of Business Administration, University of Tabuk, Tabuk 47512, Saudi Arabia
Aida Arbi Nefzi: Department of Finance and Investment, Faculty of Business Administration, University of Tabuk, Tabuk 47512, Saudi Arabia
Mohammed Al Yousif: Economic Division, Saudi Central Bank (SAMA), Riyadh 12712, Saudi Arabia

JRFM, 2024, vol. 17, issue 12, 1-28

Abstract: This study examines the short-run and long-run equilibrium relationship between the banking sector’s efficiency and stability and its endogenous and exogenous determinants, such as inflation and international oil price shocks in Saudi Arabia from 2004 to 2022. This study differentiates between the direct and indirect effects of international oil price changes on bank efficiency and stability and investigates how these changes can affect the banking sector through inflation. The first stage uses a panel Autoregressive Distributive Lag (ARDL). The empirical result confirms a long/short-run relationship between oil price shocks and the stability and efficiency of banks. In the long run, the relationship is statistically significant and positive, and it is negative in the short run. On the other hand, this study finds that oil price shocks directly affect the stability and efficiency of banks. In the second stage, this study uses a nonlinear ARD (NARD) to examine the short- and long-run asymmetric impacts of oil price shocks on the stability and efficiency of banks by decomposing the oil price index into positive and negative changes. The findings confirm an asymmetric relationship between oil prices and the stability and efficiency of banks in Saudi Arabia. In addition, a positive change in oil price can affect the stability and efficiency of banks more than a negative one. Overall, the findings highlight the need for policymakers in Saudi Arabia to be vigilant in addressing potential risks arising from oil price fluctuations and to adopt appropriate policy measures to maintain stability and efficiency in the banking sector.

Keywords: Saudi Arabian banking sector; oil price shocks; inflation; bank efficiency; bank stability (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/17/12/543/pdf (application/pdf)
https://www.mdpi.com/1911-8074/17/12/543/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:17:y:2024:i:12:p:543-:d:1533269

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().