Commodity Price Shocks and Financial Sector Fragility

By Tidiane Kinda, Montfort Mlachila, Rasmané Ouedraogo

February 1, 2016

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Tidiane Kinda, Montfort Mlachila, and Rasmané Ouedraogo. Commodity Price Shocks and Financial Sector Fragility, (USA: International Monetary Fund, 2016) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates the impact of commodity price shocks on financial sector fragility. Using a large sample of 71 commodity exporters among emerging and developing economies, it shows that negative shocks to commodity prices tend to weaken the financial sector, with larger shocks having more pronounced impacts. More specifically, negative commodity price shocks are associated with higher non-performing loans, bank costs and banking crises, while they reduce bank profits, liquidity, and provisions to nonperforming loans. These adverse effects tend to occur in countries with poor quality of governance, weak fiscal space, as well as those that do not have a sovereign wealth fund, do not implement macro-prudential policies and do not have a diversified export base. These findings are robust to a battery of robustness checks.

Subject: Banking crises, Commodity price shocks, Commodity prices, Economic sectors, Financial crises, Financial institutions, Financial sector, Nonperforming loans, Prices

Keywords: Asia and Pacific, B. price shock, Banking crises, Banking crisis, Caribbean, Commodity exporter, Commodity exports price shock, Commodity price downturn, Commodity price indices, Commodity price shocks, Commodity price shocks increase, Commodity prices, Commodity producer, Commodity subcategory, Financial sector, Financial sector fragility, Long-lasting adverse commodity price shock, Middle East, Nonperforming loans, North Africa, Oil price collapse, Oil price shock, Price shock, Real interest rate, Return on equity, Shocks measure, Sub-Saharan Africa, Terms of trade, Using price, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/012
Stock No:

WPIEA2016012
ISBN:

9781498328722
ISSN:

1018-5941

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