The micro and macro factors associated with the profitability in the Iranian banking industry: An approach to panel data

Document Type : Original Article


1 Assistant professor, Department of Economics, Qaemshahr Branch, Islamic Azad University, Qaemshahr, Iran

2 Ph.D, Department of Economics, Economic consultant of Shahr Bank, Tehran, Iran.


The profitability of banks is generally influenced by micro (bank-specific) and macro (external) factors. The micro factors are basically a function of the bank management policies and decision making, while the macro (external) factors represent the forces at work in the bank's economic and legal environment, outside the bank management's sphere of influence.  This paper examines the effect of micro (bank-specific) and macro (external) factors on the profitability of the banking industry in Iran (per private and state banks) for the period 2008 to 2014 using the panel data method. In this study, the bank profitability is measured by return on assets (ROA). The results indicate that among the micro factors, the bank size and its deposit volume, and among the macro factors, economic growth and inflation, have a significant impact on the bank profitability. In the case of private banks, capital adequacy, deposit volume, and liquidity volume among the micro factors, and economic growth and inflation among the macro factors, have a significant effect on the bank profitability.