The Mutual Impact of Credit Risk and Bank Stability in Iranian and West Asian Banks

Abstract

Banks play an important role in the country's economy, so increasing bank’s financial stability through the management of financial risks, including credit risk, is one of the most important factors in maintaining the stability of the economy. The mutual effect of credit risk and banking stability in 14 Iranian and 13 West Asian banks in period of 2012-2018 has been studied in this research using GMM approach. Findings show than both credit risk and bank stability have a mutual negative and statistically meaningful effect on eachother. Results also show that there is no meaningful difference between Iranian and West Asian banks about effect of credit risk on bank stability, but the negative impact of bank stability on Iraninan banks is greater. The results of this study can be used by banking sector policymakers to reduce credit risk and enhance bank stability.