Investigation of the Financial Stability of Banking Sector and Its Determinants in Iran, Applying Z-Score Indices

Applying z-score indices and a panel data approach, the financial stability of banking sector and its determinants during 1380-1388 are investigated in this paper. The data used in this study have been taken from banking sector balance sheets and income data. The results show that an increase in the debt/assets and cost/income ratios would cause the banking financial stability to decrease. However, an increase in the Income Diversity Index would have a positive and significant effect on the financial stability of the banking sector. Moreover, among the variables affecting the financial stability of the banking sector, the ratio of debt/assets has had more negative effect on the banking financial stability. Among the macroeconomic variables in the model, inflation rate has had a negative effect on the financial stability of the banking sector. If the inflation rate increases, the financial stability of the banking sector decreases, but other variables like GDP growth rate and exchange rate growth have no significant effect on the financial stability of the banking sector.