bu ali sina university Journal of Applied Economics Studies in Iran 2322-2530 15 58 2026 07 23 Analysis of Profitability Gap in Iran’s Banking System: Study of Large and Small Banks Duality Using Quantile Regression Approach Analysis of Profitability Gap in Iran’s Banking System: Study of Large and Small Banks Duality Using Quantile Regression Approach 117 146 6472 10.22084/aes.2025.31910.3856 FA Vahid Shabani Department of Economics, Faculty of Management and Economics, Sciences and Research Branch, Islamic Azad University, Tehran, Iran. 0009-0001-0152-5760 Kambiz Hojabr Kiani Department of Economics, Faculty of Economics and Political Science, Shahid Beheshti University, Tehran, Iran. (Corresponding Author). 0000-0002-0191-2138 Seyed Shamseddin Hosseini Department of Economics, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran. 0000-0001-8337-5796 Marjan Damankeshideh Department of Economics, Faculty of Management and Economics, South Tehran Branch, Islamic Azad University, Tehran, Iran. 0000-0002-2671-9588 Journal Article 2025 11 13 Iran’s banking system, characterized by structural duality between large state-owned banks and smaller private institutions, experiences persistent profitability gaps that threaten financial stability and efficient resource allocation. Traditional regression methods are unable to identify the heterogeneous effects of determinants across different profitability levels. This study aims to analyze the profitability gap using quantile regression to examine the differential impacts of bank-specific and macroeconomic variables throughout the profitability distribution. This research is crucial for developing targeted policies that address the specific challenges faced by banks at different performance levels. Main Question: How do determinants of bank profitability vary across different quantiles of the profitability distribution? Main Hypothesis: The effects of bank-specific and macroeconomic variables on profitability are heterogeneous and asymmetric across different quantiles. This research employs a quantile regression approach on data from 20 Iranian banks from 2011 to 2023, examining the differential impacts of variables including bank size, loan portfolio, deposits, non-performing loans, and macroeconomic indicators. Results show significant heterogeneity: non-performing loans strongly affect low-profit banks, while liquidity growth significantly impacts high-profit banks. Symmetry and slope equality tests confirm distributional asymmetry. The findings emphasize the necessity of developing tiered regulatory frameworks appropriate to banks’ positions in the profitability distribution. Iran’s banking system, characterized by structural duality between large state-owned banks and smaller private institutions, experiences persistent profitability gaps that threaten financial stability and efficient resource allocation. Traditional regression methods are unable to identify the heterogeneous effects of determinants across different profitability levels. This study aims to analyze the profitability gap using quantile regression to examine the differential impacts of bank-specific and macroeconomic variables throughout the profitability distribution. This research is crucial for developing targeted policies that address the specific challenges faced by banks at different performance levels. Main Question: How do determinants of bank profitability vary across different quantiles of the profitability distribution? Main Hypothesis: The effects of bank-specific and macroeconomic variables on profitability are heterogeneous and asymmetric across different quantiles. This research employs a quantile regression approach on data from 20 Iranian banks from 2011 to 2023, examining the differential impacts of variables including bank size, loan portfolio, deposits, non-performing loans, and macroeconomic indicators. Results show significant heterogeneity: non-performing loans strongly affect low-profit banks, while liquidity growth significantly impacts high-profit banks. Symmetry and slope equality tests confirm distributional asymmetry. The findings emphasize the necessity of developing tiered regulatory frameworks appropriate to banks’ positions in the profitability distribution. https://aes.basu.ac.ir/article_6472_832353270aacb6e3322f493a66aaf5b9.pdf