The Relationship between Macro Economy and Iranian Banking Fragility

Financial fragility is an important criterion for forecasting banking crisis. Iranian banking network has faced macroeconomic imbalances, declining profitability and rising credit and liquidity risks in recent years. The same process has caused Iranian banking network to be subjected to financial fragility. Given the importance of measuring financial fragility in this paper, a new benchmark for financial fragility is defined. Then the effects of macroeconomic variables in normal and stress conditions are investigated. For this purpose, the financial statements of 30 Iranian banks during the period from 2006 to 2017 and the method of the Logit panel have been used. The results of this study showed that economic growth and the growth of value added of various economic sectors such as industry and housing have increased financial fragility. In contrast, rising deposit interest rates reduces financial fragility. Macroeconomic stress also exacerbates financial fragility. Improving banking health, such as increasing capital adequacy and reducing the cost-to-income ratio, will reduce financial fragility.

Keywords:

Financial fragility , Liquidity risk , Credit risk , Panel Logit