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Effective Factors on Bank Profitability in Iran

Author

Listed:
  • Ebrahimi , Mehrzad

    (Faculty of Economics and Management, Islamic Azad University of Shiraz)

  • Arshadi , Ali

    (Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI))

  • Salimi , Mohamad Sadegh

Abstract

Not only in Iran, but throughout the world, banks and banking industry are considered as very important parts of the economy. This study seeks to investigate the impact of the internal characteristics of banks, the structure of the banking industry and the economic situation of Iran on the profitability of the banking system of Iran by exploring the theory of the Structuralism school concerning the impact of structure on profitability. To this end, data relating to 18 private and public banks of Iran during 2003 to 2012 are analyzed by using panel data methods. First, the profitability of the banking system is calculated using relevant indicators; and then, the impact of various internal, structural and environmental factors on bank profitability is evaluated. The results show that internal factors - the amount of capital and the size of the bank - have a positive impact on profitability. Besides, structural factors including market share and concentration are shown to have a positive impact on profitability whereas ownership appears to have no significant impact. Furthermore, inflation and economic cycles - among environmental factors - exhibit a positive impact on profitability.

Suggested Citation

  • Ebrahimi , Mehrzad & Arshadi , Ali & Salimi , Mohamad Sadegh, 2015. "Effective Factors on Bank Profitability in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 10(1), pages 107-129, January.
    • Handle: RePEc:mbr:jmonec:v:10:y:2015:i:1:p:107-129
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    References listed on IDEAS

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    More about this item

    Keywords

    The banking industry of Iran; Profitability; Return on assets; Structuralism theory;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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