The asymmetrical linkage between oil price and banking stability in the MENA region
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 3 November 2022
Issue publication date: 14 April 2023
Abstract
Purpose
This paper aims to empirically investigate the asymmetrical relationship between changes in oil price and the banking stability of the conventional and Islamic banks in the Middle East and North African (MENA) countries.
Design/methodology/approach
This paper measures banking stability with Z-score and probability of default using the Generalized Method of Moment. This paper selects a sample of conventional and Islamic banks operating within the MENA oil-producing states between 2008 and 2016.
Findings
The result of this paper reveals that the banking stability of the two types of banks responds to positive and negative shocks in oil prices. Thus, the stability of conventional banks is slightly better than that of Islamic banks in the region. Consequently, this paper also reveals that bank capitalization improves with the banking stability of the two banking systems in the region.
Practical implications
The findings of this paper will help the banks in the MENA oil-producing countries with strategies for improving banking stability during the oil price fluctuations and provide the policymakers with possible time for bank capital reform.
Originality/value
This paper explores the impact of the international oil price shocks on Islamic and conventional banks in one of the essential global oil-producing regions. As such, this paper extends the banking stability literature by accounting for the role of oil shock prices on banking distance and the probability of default. To the best of the authors’ knowledge, this is the first investigation of different transmission channels of oil price fluctuations in the region while considering the dual banking system in the hub of Islamic banks.
Keywords
Acknowledgements
The authors like to express their gratitude to the chief editor (Prof Kabir Hassan) and the anonymous reviewers for their helpful comments that greatly enhanced the quality of the article.
Funding: This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.
Citation
Mohammad, A.R. and Aliyu, S. (2023), "The asymmetrical linkage between oil price and banking stability in the MENA region", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 16 No. 3, pp. 539-556. https://doi.org/10.1108/IMEFM-02-2022-0087
Publisher
:Emerald Publishing Limited
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