The Effect of Oil Shocks on the Performance of Banks

Crude oil is the most important input in production, and its price shocks are remarkable because of its significant impact on the real economy. Oil is important in economic activity and financial markets. The shock of oil prices may also affect the performance of banks, with adverse effects on macroeconomics such as consumption and investment. The purpose of this study was to investigate the effect of oil price shocks on the performance of banks in Iran during the period of 1385 to 1395. EGARCH model was used to calculate oil price shocks. The statistical sample includes the following banks: Pasargad, Ansar, Tejarat, Khavar miyane (Middle East), Sina, Saderat-e-iran (Iran Export), Karafarin (Entrepreneur), Mellat, Eghtesad-e-novin (New Economy) and Parsian (Persian). In order to evaluate the Bank's performance, the CAMELS rating system indicators (capital adequacy, asset quality, management efficiency, earnings, and liquidity) were considered. The research findings show that oil price shocks have a significant effect on banking performance so that an increase in oil price will lead to a decrease in bank performance with respect to CAMELS’s pattern.