The Effects of Macroeconomic and Bank-Specific Variables on Non-Performing Loans of Selected Iranian Banks

Non-performing loans (NPLs) constitute one of the main supervisory indices and indicate the weakness of banks in financing various economic sectors. This is especially true in Iranian economy in which the banking system shoulders the burden of providing financial resources. However, the Iranian economy is categorized as a bank-based one. At present situation, parts of the assets are frozen in the form of non-performing loans to government and non-government sectors, and thus the banks will be exposed to various risks which cause instability in banking sector and macroeconomic situation. The current paper intends to analyze the causes of the NPLs and estimate the role of macroeconomic as well as bank-specific variables.
For this purpose, the study used panel data models to investigate the causes of NPLs in 19 banks on a quarterly basis during 2008 to 2015. Results of the model testing offer an estimation of the effects of each group of macroeconomic and bank-specific variables on NPLs. The model attributes a stronger effect to bank-specific variables compared to macroeconomic ones. However, the role of macroeconomic variables such as economic growth cannot be ignored.