OIL PRICE VOLATILITY AND DEPOSIT MONEY BANKS’ PERFORMANCE IN SELECTED AFRICAN COUNTRIES
Osazee Godwin Omorokunwa, PhD and Amarachi Doris Udodiegwu
Volume 5 Issue 2
Abstract
The study investigates the nexus between banking sector performance and changes in oil prices in the some selected African region. The ratio of non-performing loans to return on assets (ROA) and return on equity (ROE) was used to gauge the performance of the banking industry using the GARCH framework to measure the volatility of oil prices. Panel data from 2000 to 2022 for four oil-exporting nations in some selected African region were used to analyse this study empirically. The study indicated a long relationship between oil price volatility and banking sector performance among African countries. Also, oil price fluctuation exerts a significant negative long-run impact on banks' return on assets in these countries. The return on equity of deposit money banks in African countries that export oil is significantly impacted negatively over the long term by the volatility of oil prices. Additionally, the volatility of oil prices raises the ratio of non-performing loans among banks in the African countries as well as loan failure. Therefore, the study recommend that banks should create mechanisms that can respond to the impact of external market shocks on their operations. These actions could take the shape of systems for a well-diversified portfolio that will enhance the banks' hedging. Keyword: Deposit Money Banks, Oil Price, Oil Producing Countries, African
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