Template-Type: ReDIF-Article 1.0
Author-Name: Mahla Sadeghi
Author-Name-First: Mahla
Author-Name-Last: Sadeghi
Author-Email: mahla.sadeghi6031@iau.ir
Author-Workplace-Name: Ph.D. Student, Department of Economic, SR.C., Islamic Azad University, Tehran, Iran
Author-Name: Teymour Mohammadi
Author-Name-First: Teymour
Author-Name-Last: Mohammadi
Author-Email: mohammadi@atu.ac.ir
Author-Workplace-Name: Professor, Department of Economic, Allameh Tabatabai University, Tehran, Iran
Author-Name: Farhad Ghaffari
Author-Name-First: Farhad
Author-Name-Last: Ghaffari
Author-Email: ghaffari@srbiau.ac.ir
Author-Workplace-Name: Associate Professor, Department of Economic, SR.C., Islamic Azad University, Tehran, Iran.
Title: Exchange Rate Volatility and Non-Performing Loans in Iran’s Banking System: The Moderating Role of Bank-Specific Factors under Financial Sanctions
Abstract: This study examines the dynamic impact of exchange rate volatility on non-performing loans (NPLs) in Iran’s banking system, while simultaneously accounting for the moderating role of bank-specific factors, including capital adequacy (CAR), liquidity (LQ), and management quality (MQ). A Panel Vector Autoregression (Panel-VAR) framework is employed using balanced panel data from 18 Iranian commercial banks over the period 2011–2023, comprising 234 bank-year observations. The adopted methodology integrates LLC and IPS unit root tests, Pedroni and Kao cointegration analyses, and system GMM estimation to address endogeneity and dynamic panel bias. Exchange rate volatility is measured using a GARCH(1,1) model based on the official USD/IRR exchange rate. The results indicate that exchange rate volatility exerts a positive and statistically significant effect on NPLs, operating primarily through the balance sheet channel. Capital adequacy and liquidity function as significant mitigating buffers, whereas management quality exhibits a smaller yet still significant negative effect. The high autoregressive coefficient of NPLs points to substantial persistence in the deterioration of credit quality. Cointegration analysis confirms the existence of three long-run equilibrium relationships among the variables, reinforcing the structural nature of these linkages. Granger causality tests establish bidirectional causality between exchange rate volatility and NPLs, suggesting the presence of reinforcing feedback dynamics. The findings support prioritizing exchange rate stabilization as a prerequisite for financial stability, accelerating the implementation of Basel III capital requirements with countercyclical buffers calibrated to exchange rate risk, and integrating exchange rate indicators into banking supervisory early warning systems.
Classification-JEL: JEL
Keywords: Non-performing loans; exchange rate volatility; bank liquidity; Iran’ s banking system; financial sanctions
Journal: International Journal of Resistive Economics
Pages: 151-184
Volume: 14
Issue: 2
Year: 2026
Month: May
DOI: 10.22034/oajre.2026.578898.1201
File-URL: https://www.oajre.ir/article_243564_50fc6af7a49c03b670c1cb6ff87f385c.pdf
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File-URL: https://www.oajre.ir/article_243564.html
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Handle: RePEc:trd:journl:243564