The Iranian banking system, which provides more than 90% of domestic financing, has long faced persistent balance-sheet weaknesses that may threaten financial stability and monetary control. This study investigates the macroeconomic determinants of bank balance-sheet imbalances and their effects on credit expansion within an integrated empirical framework. A comprehensive bank imbalance index is constructed using fuzzy goal programming and incorporated into a two-step System GMM framework based on a balanced panel of 14 Iranian banks observed semi-annually from March 2017 (Esfand 1395) through September 2024 (Shahrivar 1403), yielding 224 bank-period observations. The findings reveal strong persistence in bank imbalances, with the lagged coefficient close to unity, indicating near-unit-root persistence rather than an explosive process. Non-oil sector value added is positively associated with measured imbalance, whereas oil-sector value added is negatively associated with it. Inflation is negatively associated with measured imbalance, primarily reflecting nominal debt erosion and valuation effects rather than an improvement in banks’ underlying real fundamentals. Furthermore, greater balance-sheet imbalance is associated with stronger loan growth, consistent with a possible defensive credit-creation channel. However, the aggregate evidence does not establish loan evergreening or moral hazard as causal mechanisms. These findings underscore the importance of resolving impaired assets, strengthening prudential supervision, and reducing structural pressures on banks to enhance financial resilience and monetary stability.