Investigation of Financial Insolvency in the Iranian Banking System and Its Determinants

Subject Areas : Financial engineering

kobra Farhadi ¹ , hamid kurdbacheh ^{2 *}

1 - Department of Economics, Alzahra university, Tehran, Iran.
2 - Department of Economics, Alzahra university, Tehran, Iran.

Received: 2020-05-24 Accepted : 2020-07-16 Published : 2021-03-21

Keywords: Bank, logit model, ROE, ROA, insolvency,

Abstract :

Bankruptcy as a systematic issue can cause significant losses for financial institutions and countries, disrupt resource allocation and slow economic growth. Accordingly, bankruptcy is a phenomenon that all central banks, financial and credit institutions pay particular attention to it. Signs of bankruptcy appear before it occurs. Disability or failure is an important warning sing before bankruptcy which is known as the stage before it occurs. In this paper, we attempted to identify pole banks by using the financial statements of Iranian banks over the period 2006-2017 and also by using Logit model and to analyze the factors affecting the probability of occurrence of fraud in the Iranian banking system by designing an econometric model. The results indicate that the cost to income ratio has a positive and significant effect on the probability of failure and the performance index ROE had on inverse and significant effect on the dependent variable. Therefore, continuous monitoring and observation of these two variables for banks can provide an appropriate warning of the possibility of a bank failure.