The Effect of Non-performing Loans on Banks’ Financial Performance in the Iranian Banking System

Document Type : Research Paper

Authors

1 ریاست دانشکده اقتصاد

2 استاد

3 not

Abstract

 
The growing non-performing loans (NPLs) and increment of their shares to more than 15% of loans, along with increasing doubtful accounts’ share to more than 60% of loans, make NPLs as main threat for banks and credit institutions. The increase in NPLs volume has significant effects on behaviour of banks and institutions as two sides of such loans. The increasing cost of financial intermediation and reduction of profit margins are some of such effects in this area. So risk-taking and investment of banks could be affected. In this paper profitability of banks in such loans is investigated. For this purpose growth effect of expired loans, NPLs and doubtful accounts on return on asset and equity have been evaluated. In this regard, a panel regression model is run for sixteen banks of Iran during 2005-2012. The results show that NPLs and doubtful accounts have negative and significant effects on banks’ profitability. However there is significant and positive relationship between the expired loans and profitability of banks

Keywords

References

 
منابع
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