The Effect of Profitability and Stability of the Banking Sector on Iran's Economic Growth

The global financial crisis of 2008 and the sharp reduction in interest rates have affected the profitability of foreign banks. This situation has created a new set of concerns for policy makers, but there is no empirical evidence that shows the effect of profitability on economic growth. On the other hand, central banks, regulatory authorities, and macroeconomic policies are interested in evaluating and monitoring the stability of the banking sector, as well as the role of inter-banking competition to resist economic shocks. Given that the banking sector plays an important role in the financial system of any country, the aim of this research is to investigate the effect of profitability and stability of the banking sector of our country, considering the role of competition on economic growth. To this aim, 15 banks in Tehran's capital market were selected through screening. The data was collected from a 10-year period between 2012 and 2021. The results based on OLS and GMM methods show that bank profitability has no significant effect on economic growth, while bank stability has a significant effect on economic growth. Moreover, the results reveal that the profitability of banks through competition does not have a significant effect on economic growth.