Credit Crunch Testing in Iranian Banking System

Abstract

There are many economic factors related to credit crunch, which includes structure of banking system, private sector, investment and government. Among these factors structure of banking system in Iranian banking system known as the most important one. They consider it as a continuous decline in credit demand. However, number of economists minimized the important factors, which have reduced the ability of credit supply by banks. The credit crunch indicates reduction in credit demand and the weaknesses of balance sheets in banking system. Data analysis is also important to study the credit crunch, and this phenomenon would be develop at the state level, however, economic shock at the national level could decline bank capital. We aim to test the existence of credit crunch in Iranian banking system. We also examine the effective factors, which have significant impact on credit crunch. The purpose of this study is to investigate the main reasons of credit crunch in Iranian banking system including economic and balance sheet structures by GMM econometric model. In order to test credit crunch in Iranian banking system, we use dummy variable. In this case we consider credit crunch dummy variable by capital ratio as an effective variable on growth of loan. The multiplied credit crunch dummy by capital ratio is significantly negative and this result show that the capital ratio could be affected on credit crunch in Iranian banking system.