Effects of Merger, Concentration and Credit Risk on Efficiency of Iranian Banking Industry: 1380-1384

The main purpose of this paper is to analysis the effects of merger, concentration and credit risk on the efficiency of Iranian banking industry. A Log - Linear form of a random Translog cost function are specified and then a parametric approach is used to estimate two empirical models using the bank's balance sheets data over the period 2001-2005.The results of the first model show that the average efficiency measure of banking system in Iran is 34 percent. Moreover, merger of the more inefficient banks within the efficient bank will cause the average efficiency measure rise to 50 percent. The results of the second model which assesses the effect of factors on efficiency indicate that efficiency of banks has an inverse relationship with the size of commercial banks (total asset), concentration (competition in banking industry), and a direct relationship to the number of branches, the number of educated personnel, IT index (e-Banking activity) and capital to assets ratio (as a credit risk index).