Measuring the risk of an Iranian banking system using Value at Risk (VaR) Model

Sudabeh Morshedian Rafiee,Zahra Houshmand Neghabi,Ali Feizollahei

doi:10.5267/j.msl.2012.08.020

Abstract

Article history: Received May 20, 2012 Received in Revised form July, 29, 2012 Accepted 15 August 2012 Available online 21 August 2012 Measuring risk of financial institutes and banks plays an important role on managing them. Recent financial turmoil in United States banking system has motivated banking industry to monitor risk factors more closely. In this paper, we present an empirical study to measure the risk of some private banks in Iran called Bank Mellat using Value at Risk (VaR) method. The proposed study collects the necessary information for the fiscal year of 2010 and analyses them using regression analysis. The study divides the financial data into two groups where the financial data of the first half of year is considered in the first group and the remaining information for the second half of year 2010 is considered in the second group. The implementation of VaR method indicates that financial risks increase during the time horizon. The study also uses linear regression method where independent variable is time, dependent variable is the financial risk, and the results confirm what we have found in the previous part of the survey. © 2012 Growing Science Ltd. All rights reserved.

Highlights

Financial crises of the late seventies, early eighties and late nineties have created a huge chaos in the world
Khodaei Valahzaghard et al (2012) presented an empirical investigation to measure the effects of various factors on operating loss in one of major Iranian banks called Bank Mellat
The results of the implementation of two methods of Value at Risk (VaR) and linear regression indicated that the risk of open positions increased during the time horizon

Summary

Introduction

Financial crises of the late seventies, early eighties and late nineties have created a huge chaos in the world. According to Basel model, the most important risks most banks are faced include country risk, risk associated with transferring funds, market, interest rate, liquidity, operational, legal and reputation risks. Khodaei Valahzaghard et al (2012) presented an empirical investigation to measure the effects of various factors on operating loss in one of major Iranian banks called Bank Mellat They used a standard questionnaire and distributes it among 57 people who are mainly in top management levels. The study did not confirm that the loss associated with events outside the organization increase operating, risk meaningfully They showed that there was not enough evidence to believe that the effects of business disruption and internal affairs are significantly different from the other event. The results of the implementation of two methods of VaR and linear regression indicated that the risk of open positions increased during the time horizon

The proposed study

The results

Conclusion and Recommendations