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Capital Adequacy Ratio and Financing Behavior in Iran’s Banking System

Author

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  • Afshari , Zahra

    (Faculty of the Social Sciences and Economics, Alzahra University)

  • Bagherzadeh , Mahsa

    (Faculty of the Social Sciences and Economics, Alzahra University)

Abstract

For Iran as an oil exporter country, heavy reliance on the extractive sector for generating fiscal revenues and export earnings translates into increased vulnerabilities to oil price shocks. The structure of the economic policy, and the banking systems make macroprudential policy a particular relevant tool for Iran. The capital adequacy is a macro prudential instrument used to maintain the stability of Iranian financial system by considering the bank capital condition. This paper examines the impact of capital adequacy on financing behavior in Iranian banking system. The paper uses generalized method of moment estimation (GMM) technique and by employing bank-level data for both public and private banks covering the period 2003-2016, we analyze the reaction of bank financing behavior toward capital adequacy policy. The findings indicate that capital adequacy ratio is observed to be effective in curtailing financing behavior of banking institutions. Furthermore, the results reveal that the impact of capital adequacy in managing credit expansion of private banks was greater than public banks.

Suggested Citation

  • Afshari , Zahra & Bagherzadeh , Mahsa, 2017. "Capital Adequacy Ratio and Financing Behavior in Iran’s Banking System," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 12(3), pages 235-249, July.
    • Handle: RePEc:mbr:jmonec:v:12:y:2017:i:3:p:235-249
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    More about this item

    Keywords

    Macroprudential; Banking System; Financing Behavior; Iran; GMM;
    All these keywords.

    JEL classification:

    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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