Long-Run and Short-run Effect of Oil Price Shocks on Bank Liquidity Risk in Major Oil Exporting Countries in Africa.

Abstract:

This paper examines the relationship between global oil price shocks and bank liquidity risk for top major oil exporting countries in Africa from 2000 to 2021. The study employs the novel appropriate autoregressive distributed lag (ARDL) model because of its fitness to the time series unit root test results. The findings reveal a negative and 1% significant long-run effect of global oil price shocks on bank liquidity risk. It shows that a persistent decline in global oil prices would potentially lead to a decrease in bank-credit-bank deposits, thus increasing bank liquidity risk. Additionally, GDP and RIR show a significant positive and negative long-run relationship with bank credit-to-bank deposit ratios respectively. The results suggest that there is a need for adequate asset management strategies in the banking sector as it relates to the global oil price supply and demand shocks.