The Effects of Global Financial Crisis on Bank Lending: Evidence from Selected ME Countries

The recent global financial crisis has affected many economies including both developed and developing economies. The decline in global production has also decreased the demand and prices of commodities including oil. Lower demand for oil was expected to have significant impacts on the oil exporting countries mainly those in the Middle East. This study investigates the effects of change in oil prices, GDP and deposits on bank lending in the selected Middle East countries. The objective is to understand to what extend the global financial crisis has affected bank lending performance. In this respect, the study uses the data of Saudi Arabia, UAE, Egypt, Jordan, Qatar and Iraq for the period 2005 to 2015. The correlation analysis shows that there is a negative but not significant relation between oil prices and banks’ lending. This indicates that banks’ lending behavior is not correlated with the change in oil prices. The analysis also shows that there exist a negative and significant correlation between the GDP and bank lending. In addition, amount of deposits in the banking sector is positively correlated with the amount of loans given to the private sector. When change in oil prices, GDP and deposits are regressed; GDP (negatively) and deposits (positively) are found to have significant impact on bank lending. The analysis indicates that deposits are the main source and determinants of bank lending in the studied economies. Keywords: Bank lending, oil prices, deposits, gross domestic product