Oil Price Shocks and Banking Sector Stability in Nigeria (2007–2024)

Abstract

This study investigated how oil price shocks relate to banking sector stability in Nigeria during 2007–2024. Banking stability was represented by the non-performing loan (NPL) ratio, while Brent crude oil price, external reserves, the naira to dollar exchange rate and real GDP growth were specified as explanatory variables. An ex post facto design was adopted, relying on secondary information obtained from the World Bank, Central Bank of Nigeria, US Energy Information Administration and National Bureau of Statistics. The analysis involved descriptive statistics, Pearson correlation, OLS multiple regression and diagnostic procedures including Durbin-Watson, VIF and Breusch-Pagan tests, together with a Chow structural-break test around the 2020 COVID-19 period. The regression model was significant (F = 3.850, p = 0.028), and the four explanatory variables accounted jointly for 54.2 per cent of the variation in NPLs. Brent crude price recorded a significant inverse relationship with NPL (B = −0.291, p = 0.004), indicating an inverse association between oil price and NPLs. External reserves and the exchange rate were not statistically significant. GDP growth had a significant positive coefficient, contrary to the prior expectation, which is associated with the coincidence of strong growth and unusually high NPLs during the pre-AMCON period. The Chow test did not identify a structural break in 2020 (F = 0.264, p > 0.05). The study therefore identifies oil price as the strongest macroeconomic factor associated with banking-sector stability and recommends macro prudential buffers that respond to oil-price conditions.