Evaluating the Impacts of Credit Growth and Income Diversification on Cost Efficiency in Iran’s Banking Industry

Competition in the banking system due to the entry of new banks has increased in recent years. Therefore, banks have different policies to increase their market share. Income diversification and credit growth are the policies that may affect the banks efficiency. This study examines the effects of credit growth and income diversification on the cost  efficiency of banking system by using the banking-level data over the period of 2006-2014 and applying Tobit model.  The study findings show that the Sina Bank and Bank Meli have the highest and lowest cost efficiency, respectively. The results of Tobit's estimation show that credit growth and income diversification improve the cost efficiency of banking industry.