The Impact of Assets Market and Real Sector Indicators on the Non-Performing Loans (Case of the I.R. of Iran)

This paper applies a dynamic panel model to estimate the impact of real and assets price index on the banks Non-Performing Loans as key soundness indicators. The study focuses on the 31 banks during 2006-13. Results indicate that output growth, asset-composite price and total loans growth exacerbate the NPLs whereas the lags of the NPLs strengthen the current growth of the NPLs. Specifically, Data analysis denotes when the NPLs are unexpectedly exposed to a trigger, the banks would sequentially prefer to reschedule or negotiate with main borrowers in the first period, and then to legally promulgate and claim hair cut in the second period. Moreover, output growth profoundly-reversely influences the NPLs growth as its impact prevail the effect of other explanatory variables. Assets price-composite index as main determining element of assets market condition as anticipated, express a reversal association with the NPLs. The outcome of estimation which also explains the impact of weighted-assets-composite price and output growth on the NPLs denotes the same results as prior estimations.JEL Classification: G21, G23, G32, F34

Keywords:

NPLs , Real sector , Assets price , Dynamic Panel model