Effect of macroeconomic fluctuations on the lending behavior of commercial banks in Iran

Economic growth of economies is strongly dependent on soundness of financial institutions. many economic activities are in need of lending from banking system, the distortions in bank lending behavior may lead to economic variables instability and business risk for firms. Therefore, in this research effect of macroeconomic fluctuations on the lending behavior of commercial banks in Iran during 1974-2015 was modeled using AutoRegressive Distributed (ARDL) model. Empirical results showed that lending to commercial banks (Bank loan to asset ratio) have long run relationship with output changes over the business cycle. In other words, the economic recovery leads to acquiring credit risk and more lending of commercial banks. The increase in commercial banks assets that approximate the size of the bank, have a significant impact on the behavior of commercial banks lending. The larger banks can afford to higher risks in lending. Monetary base not only increase bank lending (in terms of the ratio of loans to assets), but in the long run, it reduces lending capacity by a negligible size