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Oil price shocks and Chinese banking performance: Do country risks matter?

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  • Lee, Chi-Chuan
  • Lee, Chien-Chiang

Abstract

This paper contributes to the existing literature by investigating the impacts of oil prices on bank performance through a broad array of CAMEL (Capital adequacy, Asset quality, Management, Earnings, and Liquidity) indicators in China over the period 2000–2014. To gain further insights into this issue, we also discuss whether the correlations change with different dimensions of country risk, i.e., economic, financial, and political, which extant studies ignored. The results reveal that oil prices have a significant impact on banking performance, as their increase triggers a reduction in banking performance in terms of capitalization, management efficiency, earning power, and liquidity. However, these adverse effects are mitigated by country stability, especially economic stability and political stability. These results are important for policy makers who should be cautious when formulating a strategy for macroeconomic stability. From the managerial perspective, bank managers should consider establishing early warning and response mechanisms on the back of oil price shocks in order to operate under better performance.

Suggested Citation

  • Lee, Chi-Chuan & Lee, Chien-Chiang, 2019. "Oil price shocks and Chinese banking performance: Do country risks matter?," Energy Economics, Elsevier, vol. 77(C), pages 46-53.
  • Handle: RePEc:eee:eneeco:v:77:y:2019:i:c:p:46-53
    DOI: 10.1016/j.eneco.2018.01.010
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    Keywords

    Oil price shock; Banking performance; CAMEL ratings; Country risks;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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