Abstract
M.Com. (Development Economics)
This study examines the impact of commodity price shocks on the banking sector stability of African commodity-exporting economies. The study uses an unbalanced panel dataset comprising 18 commodity-exporting African economies spanning a 16-year period from 2000-2015. The dataset covers the 2007/2008 Global Financial Crisis and the recent 2014/2015 commodity price bust. The impact of commodity price shocks on African commodity-exporting economies’ banking sector was estimated using a panel fixed effects model. The empirical findings indicate that commodity price shocks increase bank credit risk (non-performing loans) and thus, pose a risk to the banking sector stability of African commodity-exporting economies. When disaggregated by positive and negative commodity price shocks, the results reveal that both types of shocks weaken banking sector stability. Whilst this is a surprising finding, it implies possible symmetry between positive and negative shocks for African countries. The commodity group results indicate that the agricultural and metals groups significantly increase credit risk, whilst the minerals and fuels, and the chemical groups have a positive but insignificant impact on banking sector stability. In addition, commodity price shocks are discovered to decrease credit extension to the private sector, emphasising an additional channel through which the impact of commodity price shocks may be transmitted to the real economy.