The impact of resource curse on banking efficiency: Evidence from twelve oil producing countries

The resource curse is an evolving phenomenon in the context of financial development. In this paper, using the firm-level data, we assess the impact of resource curse on the banking sector of those countries with significant dependence on oil production. Our sample spans from 1Q2001 to 4Q2019 and includes commercial banks from twelve oil-producing countries with an oil rent (% of the GDP) being twenty percent and above. We assess the effect of resource curse on banking profit efficiency, asset quality, and solvency using interest rate spreads, credit infections, and the probability of default, respectively, during periods of varying oil prices. Our results show that during episodes of the price boom, the banking efficiency declines, credit infection worsens, and the probability of default would surge. These findings confirm the presence of resources curse and validate the reasons why countries with excess reliance on natural resources tend to have lower financial development. Considering the role of commercial banking in the financial system, these results have important implications for policymakers.

Automated summary

This paper examines the impact of the resource curse on the banking sector of twelve oil-producing countries. The study finds that during periods of price booms, banking efficiency declines, credit infections worsen, and the probability of default surges. These results confirm the presence of the resource curse and its effects on the financial development of countries overly reliant on natural resources.