Asymmetric Effects of Oil Price Shocks on Nigerian Bank Performance: A Nonlinear Autoregressive Distributed Lag Analysis

Nigerian banks are indirectly exposed to oil price shocks through their energy sector loan portfolios, government finance conditions, and macroeconomic transmissions, yet the asymmetric nature of positive and negative oil price shock effects on bank performance has not been empirically investigated. This study examines the asymmetric effects of oil price shocks on the financial performance of Nigerian deposit money banks for the period 2005 to 2022, using quarterly aggregate banking sector data from the Central Bank of Nigeria Statistical Bulletin. Bank performance was measured by return on assets, non-performing loan ratio, and credit growth. Oil price shocks were decomposed into positive and negative shocks using the nonlinear autoregressive distributed lag bounds testing approach developed by Shin, Yu, and Greenwood-Nimmo. Results confirmed asymmetric effects: negative oil price shocks had a significantly larger impact on non-performing loan ratios (coefficient = 0.84, p < 0.01) than positive shocks reduced them (coefficient = -0.31, p < 0.05), indicating asymmetric transmission. Return on assets declined significantly during negative shock episodes but did not recover commensurately during positive shock periods in the short run. The study fills an empirical asymmetry gap in the Nigeria oil price-bank performance literature, and concludes that Nigerian banks remain asymmetrically vulnerable to oil price downturns, recommending mandatory oil sector concentration limits in bank lending portfolios and higher capital buffers for banks with above-average oil sector exposure. Keywords: oil price shocks, bank performance, asymmetric effects, NARDL, Nigerian deposit money banks