The Determinants of Banking Performance of Iranian Economy in the form of Simultaneous Equations

Document Type : Research Article

Authors

Bu-Ali sina University

Abstract

One of the important factors in achieving sustainable and sustainable economic growth and development is owning a robust and efficient banking system. banking system with attracting deposits and mobilization of financial resources to investing in productive affairs provides a framework for increasing of economic growth and development. Mobilization and allocating of financial resources to economic activities does through the financial market and notice of the financial market of Iran is bank-based. Therefore, the role of the Iran's banking system in investment, employment, growth and economic development because of and mobilization of resources and finance for the implementation of projects, financing of working capital of manufacturing units, providing mortgages and meeting the basic needs of the society and also avoids deepening the decline in economic activity is so important that requires expansion of the banks' performance.
Introducing variables and presenting the model
The present study with using of econometric techniques, 3SLS system methods and simultaneous equations examines the effect of effective factors on the performance of the banking sector in Iran during the period of 1393-1363, which with following of the studies conducted by Sufian and Zulkhibri (2013), Tchaidze and Tvalodze (2011), Shahabadi and Sammy (2011), Low et al (2010) and Arestis et al (2002), Bank Performance (FD) is the function of Economic Freedom Index (EF), liquidity volume (MS), gross domestic product (GDP) and real interest rate (RIR), and equation (1) is estimated.
  LFDt = β0+β1*LEFt+β2*LGDPt+β3*LRIRt+β4*LMSt+εt       (1) 
Also expecting:
σLFDt⁄σLEFt>0,  σLFDt⁄σLGDPt>0, σLFDt⁄σLRIRt>0, σLFDt⁄σLMSt>0
The Determinants of the Factors Affecting Banking Performance:
Equation of Economic Freedom (EF): With following of the studies conducted by Shafiq and Zaman (2014), King et al (2010), Lundstrfm (2005) and Banaian and Luksetich (2001), the economic freedom index is the function of ratio of oil and gas exports to gross domestic product (OE), human capital (HC), inflation (IR) and civil liberties (CI), and equation (2) is estimated:
 LEFt = β0+β1*LOEt+β2*LCIt+β3*LIRt+β4*LHCt+εt       (2)    
Also expecting:
σLEFt⁄σLOEt>0,  σLEFt⁄σLCIt>0, σLEFt⁄σLIRt>0, σLEFt⁄σLHCt>0 
Volume of Liquidity Equation (MS): With following of studies conducted by Bittencourt (2011) and Mashayekh et al (2013) the liquidity volume is the function of the ratio of currency in circulation to the sum of currency and non-currency deposits (C/D), the ratio of legal deposits of banks in the central bank to the sum of currency and non-currency deposits (LD/D), the bank's debts to the central bank (BD) public sector debt to the central bank (PSD) and the equation (3) is estimated.
 LMSt = β0+β1*L(C/D)t+β2*L(LD/D)t+β3*LBDt+β4*LPSDt+εt       (3) 
Also expecting:
 σLMSt⁄σL(C/D)t>0,  σLMSt⁄σL(LD/D)t>0, σLMSt⁄σLBDt>0, σLMSt⁄σLPSDt>0 
Equation gross domestic product (GDP): With following of the studies conducted by Burggraeve et al (2015), Ahmad and  French (2011), Takii and Tanaka (2009), Falk (2007), Shaw (1973), Goldsmith (1969) and Jung (1986), gross domestic product is the function of accumulation physical capital (PCA), accumulation research and development expenditures (R & DA), Human capital (HC) and employment (EM), and equation (4) is estimated.
LGDPt = β0+β1*LPCAt+β2*LR & DAt+β3*LHCt+β4*LEMt+εt       (4) 
Also expecting:
 σLGDPt⁄σLPCt>0,  σLGDPt⁄σLLR & Dt>0, σLGDPt⁄σLHCt>0, σLGDPt⁄σLEMt>0  
Conclusion and Policy Recommendations
 According the econometric topics, for avoid the formation of false regression should stationary of variables are examined firstly. The results of stationary of variables with using of the fuller Dicky test show that all variables are stationary in first differences. When examining the explanatory power of the equations in the simulation model, R2CN has the same role of R2 in other estimation methods. Therefore, the higher the value of this statistic is closer to the number one, the explanatory power of the estimated equation is greater and the results are more attributable (this index is defined by the MSE (Mean-Square-Error) criterion). Also, the RMSE value, which is the square of the MSE, is closer to zero, results are more reliable. According to the results of estimated equation of bank performance can be find out, the explanatory power of the estimated equation is high, and results are attributable. Results of estimation of the banking sector performance model during the period 1963-2014 shows that, variables of economic freedom, GDP and liquidity volume have a positive and significant relationship with banking performance, and the effect of the variable of the real interest rate is also meaningless. Also the variables ratio of oil and gas exports to gross domestic product, inflation rate and civil liberties have a negative and significant impact and human capital does not have a significant effect on economic freedom. Variables of physical capital, accumulation research and development expenditures and employment have a positive and significant impact, and human capital does not have a significant effect on gross domestic product. Also the liquidity volume with increasing, assets and debt central bank is increasing and decreasing, respectively. Therefore, with considering of the positive and significant impact of the economic freedom index, the liquidity volume and GDP on banking performance can find out that these variables provide a framework for mobilization of financial resources, strengthening the sense of deposit in banks and directing small depositors' funds towards production activities, because by improving economic freedom and coordination of growth rate of liquidity with growth rate of gross domestic product provide a framework for advancing the functioning of the banking sector.

Keywords

References

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Journal of Applied Economics Studies in Iran
Volume 6, Issue 24
December 2017
Pages 125-151

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