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A Pooled Mean Group Approach to the Joint Effects of Oil Price Changes and Environmental Risks on Non-Performing Loans: Evidence from Organisation of the Petroleum Exporting the Countries

Author

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  • Isma il Tijjani Idris

    (Department of Business Administration, Faculty of Administration, Ahmadu Bello University, Zaria-Nigeria,
    School of Economics, Finance & Banking, Universiti Utara Malaysia, Malaysia,)

  • Sabri Nayan

    (School of Economics, Finance & Banking, Universiti Utara Malaysia, Malaysia)

Abstract

This paper revisits the work of Idris and Nayan (2016a) on the joint effects of oil price volatility and environmental risks on non-performing loans (NPLs). Therefore, the current paper uses evidence from 13 Organisation of the petroleum exporting countries spanning 1996-2015. The present situation of worldwide NPLs is persistent and on the rise which indicates a global deterioration of loans qualities. The NPLs is more pronounced amongst the OPEC countries whose average ratio of NPLs is on the verge of the banking crisis. This directly affects further loan creation, banks liquidity, investment and productivity. Notwithstanding, the different measures put in place by regulatory authorities in OPEC countries to tackle the situation, the problem persists. The motivation of this paper is to examine the impact of systematic risks factors of oil price changes and environmental risks on NPLs by employing Pooled Mean Group methods. The results reveal that oil price changes significantly but inversely affect NPLs while environmental risks factor is found to be significantly and positively affecting NPLs. The policy implications of the findings are that for the OPEC countries to achieve financial stability they should reduce the impact of systematic risks on their financial systems. Therefore, for a continuous minimization of bad loans, the OPEC economies should efficiently increase their earnings from the oil exportation or alternatively through increased diversification of the OPEC economies from the monoculture economic activity of oil exportation. Furthermore, environmental risks should be mitigated through strong legislation for all businesses and economic units in the countries to be covered by adequate insurance covers against these calamities. Finally, OPEC governments should ensure that their prudential guidelines cover lending to business activities that are prone to such systematic risks.

Suggested Citation

  • Isma il Tijjani Idris & Sabri Nayan, 2017. "A Pooled Mean Group Approach to the Joint Effects of Oil Price Changes and Environmental Risks on Non-Performing Loans: Evidence from Organisation of the Petroleum Exporting the Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 7(3), pages 345-351.
    • Handle: RePEc:eco:journ2:2017-03-42
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    More about this item

    Keywords

    Non-performing Loans; Oil Price; Environmental Risks; OPEC Countries; Pooled Mean Group Methods;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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