Description

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.

More publications in this series: Working Papers

More publications by: Tidiane Kinda ; Montfort Mlachila ; Rasmané Ouedraogo