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  3. Investigating the impact of internal and external factors on the profitability of selected public and private banks in Iran

Investigating the impact of internal and external factors on the profitability of selected public and private banks in Iran

Number of pages: 106 File Format: word File Code: 30591
Year: Not Specified University Degree: Master's degree Category: Management
Tags/Keywords: External factors of profitability - Internal factors - Internal factors of profitability - Private banks - profitability - Profitability of banks - State banks
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  • Summary of Investigating the impact of internal and external factors on the profitability of selected public and private banks in Iran

    Academic Thesis for Master's Degree

    Field: Business Management , Financial Orientation

    Abstract

    In this thesis, the impact of internal and external factors on the profitability of banks in Iran, separately for private banks (12 banks) and government banks (5 banks) during the years 1385-1392 has been investigated. Based on the conducted tests, the panel data method was used to estimate the model of private banks and the common effects method was used for public banks. The results of the estimation of the model for private and public banks show that the deposit volume, economic growth rate, inflation rate and exchange rate instability in both groups of banks have a significant effect on the profitability of banks. On the other hand, in both groups of banks, the interest rate has no effect on profitability. The results of the investigation of other factors affecting the profitability of banks also show that the size of the bank has a significant and positive effect on the profitability of state banks, but this variable does not have a significant effect on the profitability of private banks. Capital adequacy has a significant and positive effect on the profitability of private banks, but this variable does not have a significant effect on the profitability of state banks. The volume of liquidity has a significant and negative effect on the profitability of private banks, but this variable does not have a significant effect on the profitability of state banks.

    Introduction

    Nowadays, banks play a key role in any society. These mediators contribute to the optimal allocation of resources, which is one of the main factors of economic development. Therefore, the selective examination of short-term profitability factors that will enable banks to survive in the long-term is one of the best fields of financial innovation. In this research, the information related to the factors affecting profitability, collection and their impact are measured in the form of economic models. In the first chapter, an overview of the research is presented; For this purpose, we will first state the research problem. In the following, the importance of research, research questions and hypotheses are stated.

    1-2. Statement of the problem

    Financial institutions are of great importance in the economic structure of societies. These institutions, as the beating heart of the economy in the two major capital and money markets, by creating the flow of money and liquidity, provide the grounds for attracting and equipping the resources needed for investment activities and projects, and in this sense, they are considered one of the most important bridges between the supply and demand of monetary resources (Naceur, 2003, 16). Among the actors of the money market, banks are among the oldest, most active and most extensive financial intermediaries, which by providing optimal services and facilities on the one hand and organizing and directing receipts and payments on the other hand, facilitate trade and commerce and cause the expansion of markets and economic growth and prosperity of the country (Bagheri, 2015: 4).

    In recent years, the different needs of advanced and developing societies as well as government interventions In the money market, in order to achieve different goals, including development goals, banks have evolved over time and are organized in different frameworks, among these divisions, we can mention developmental, commercial, and specialized banks, each of which has been created and developed according to the requirements of different societies in a public and private manner. Banking in Iran has also been formed in the same way and has been developed according to the economic and political conditions and generally in accordance with the development views of the country's politicians and economic planners (Noorani and Mohammadian, 1391:12).

    Regarding the importance of the role of banks in the economy, what is important in this regard is that banks, as an economic enterprise, seek to obtain maximum profit by performing banking operations. Therefore, the efforts of bank managers are to identify the factors affecting the profitability of banks in order to provide the maximum possible benefits; Because the environment in which banks operate today is a growing and very competitive environment, and in order to survive, banks have to compete with several factors at the national and international level and expand their activities through new investments. On the other hand, due to the fact that the resources and expenses of the bank are influenced by various economic factors as components influencing the profit and loss financial statements, it is very important to pay attention to these factors (al-motairi and al-omar, 2008:24). Therefore, in this regard, the question that arises is, what are the factors affecting the profitability of banks in Iran? And what effect does each one have on the profitability of banks in Iran?  

    1-3.The importance and necessity of research

    In the third millennium, the role and importance of the financial system and the money and capital market, and consequently financial and credit institutions as a tool for the economic growth and development of countries, is clearly evident, so that sustainable economic development is practically impossible without the growth and development of financial markets. Banks, as one of the most important financial institutions, are responsible for important tasks in the economy, which include arranging deposits, mediating and facilitating payment flows, credit allocation, etc. is Therefore, the efficiency and profitability of the banking system has always been of interest, because just as effective and profitable banks can be effective in economic growth and development, their inefficiency and losses can also cause financial and economic crises. In our country, banks also play an important role, because in addition to mediating funds in the money market, due to the insufficient development of the capital market, they play an essential role in financing the country's medium-term and long-term economic plans. In addition to this, the profitability of banks in the future and the ability to predict it can be a very useful help to the decision-making of managers and stakeholders in buying and selling shares and giving credit to companies, as well as a warning to managers to improve their performance.

    According to the above, what is important is what factors affect the profitability of banks. Theoretically and empirically, the factors affecting the profitability of banks have been widely studied and they are distinguished from each other in two general groups.

    These two groups are; internal factors and external factors; In the economic scale, the first group is related to independent variables within the bank. These variables are under the control of bank management. The different effects of these variables in different banks are basically a reflection of differences in the banks' management policies and decision-making regarding the resources and use of assets and liabilities portfolio management, capital adequacy and costs. In the conducted studies, various variables of this category of independent variables have been considered. But in most of these studies, some important variables are common. These variables, in addition to the amount of facilities provided by banks, which are considered the most important source of their income, include the ratio of capital adequacy, types of risks and the size of the bank (Saira et al, 2011, 2).

    The second group of independent variables that is raised in the profitability of banks is related to the conditions governing the banking industry. Among these factors, we can mention the structural factors of banks, such as ownership and scale, and factors that depend more on the economic conditions governing the country, such as inflation, money supply, regulatory conditions, central bank policy adjustments, and the growth rate of the gross domestic product. Based on the findings from the review of empirical studies, in this research, an attempt has been made to identify the factors affecting the profitability of Iranian banks (public and private), and determine the effect of each of these factors on profitability.

    1-4. Research objectives

    In general, according to the statement of the problem and the description of the subject, two main objectives are followed in this research, which are:

    Investigating how external and external factors affect the profitability of selected public and private banks in Iran

    Examining the relationship of each of these external and external factors with the profitability of selected public and private banks in Iran

    1-5. Research questions

    According to the statement of the problem, the research questions are considered separately as follows.

    What is the effect of inflation as an external factor on the profitability of selected public and private banks in Iran?

    What is the effect of economic growth as an external factor on the profitability of selected public and private banks in Iran?

    What is the effect of exchange rate instability as an external factor on the profitability of selected public and private banks in Iran? Does it have an effect?

    What is the effect of interest rate as an external factor on the profitability of selected public and private banks in Iran?

    What is the effect of asset size as an internal factor on the profitability of selected public and private banks in Iran?

    What is the effect of capital adequacy as an internal factor on the profitability of selected public and private banks in Iran?

    Liquidity as an internal factor on the profitability of state banks And what is the effect of the selected private sector in Iran?

    What kind of effect does the deposit as an internal factor have on the profitability of selected public and private banks in Iran?

    1-6. Research model

    1-6-1.

  • Contents & References of Investigating the impact of internal and external factors on the profitability of selected public and private banks in Iran

    Table of Contents

                                                                                                 . 3

    1-2. statement of the problem 3

    1-3. The importance and necessity of research. 4

    1-4. Research objectives. 5

    1-5. Research questions. 5

    1-6. Research model. 6

    1-6-1. Research conceptual model. 6

    1-6-2. Subsequential (mathematical) model of research. 6

    1-7. work method 7

    1-8. Limits and scope of research. 7

    1-9. Dissertation organization. 8

    1-10. Conceptual and operational definitions of independent and dependent research variables: 8

    Chapter two; Theoretical foundations of research

    2-1. Introduction. 11

    2-2. Research literature. 11

    2-2-1. Benefits and ideas related to it. 11

    2-2-1-1. Definition of profit. 11

    2-2-1-1-1. Definition of profit according to economists. 12

    2-2-1-1-2. Profit according to Islam. 14

    2-2-1-1-3. Profit in terms of accounting. 14

    2-2-1-2. The concept of profit. 15

    2-2-1-3. The difference between economic profit and accounting profit. 16

    2-2-2. Profitability, measurement criteria and factors affecting it. 17

    2-2-2-1. Definition of profitability. 17

    2-2-2-2. Profitability measurement criteria. 18

    2-2-2-2-1. return on assets (ROA) 18

    2-2-2-2-2. Capital return ratio (equity, ROE) 19

    2-2-2-2-3. Profit margin (NIM) 19

    2-2-3. Factors affecting the profitability of banks 20

    2-2-3-1. Internal factors (specific banking factors) 20

    2-2-3-1-1. Bank size. 20

    2-2-3-1-2. Bank capital. 21

    2-2-3-1-3. The volume of bank deposits. 22

    2-2-3-1-4. Liquidity. 23

    2-2-3-2. External factors (macroeconomic variables) 23

    2-2-3-2-1. swelling 24

    2-2-3-2-2. Economic growth. 25

    2-2-3-2-3. Exchange rate instability. 26

    2-2-3-2-4. Interest rate 27

    2-2-3-2-5. Bank ownership structure. 30

    2-3. Experimental studies. 30

    2-3-1. Foreign studies. 30

    2-3-1-1. Davidenko (2010) 30

    2-3-1-2. Sufian (2011) 31

    2-3-1-3. Khizer (2011) 31

    2-3-1-4. Achena et al. (2012) 32

    2-3-1-5. Nadim and Kanwal (2013) 32

    2-3-1-6. Almazari (2014) 33

    2-3-2. Internal studies. 33

    2-3-2-1. Rostgar Abargoui et al. (2012) 33

    2-3-2-2. Qalipur (2012) 34

    2-3-2-3. Darabi and Moulai (2010) 34

    2-3-2-4. Sabai (1390) 35

    2-3-2-5. Noorani, Amiri and Mohammadian (2011) 35

    Chapter 3: Research method

    3-1. Introduction. 40

    3-2. Research method. 40

    3-3. Statistical population. 40

    3-4. Research model. 41

    3-5. Introducing the variables in the research model. 42

    3-5-1. Profitability index. 42

    3-5-2. Inflation rate. 42

    3-5-3. Economic activity. 42

    3-5-4. Interest rate 43

    3-5-5. Exchange rate instability. 43

    3-5-5-1 methods of measuring volatility. 43

    3-5-5-2 An approach to general autoregressive conditional variance heteroskedasticity models (GARCH) 44

    3-5-5-3 Estimation of exchange rate volatility. 45

    3-5-6 Volume of deposits 48

    3-5-7 Bank size. 48

    3-5-8 Liquidity. 48

    3-5-9 capital adequacy. 48

    3-6. Research hypotheses. 49

    3-7. Methods of collecting information. 50

    3-8. Information analysis method. 50

    3-9. Panel data methodology. 50

    3-9-1. Advantages of using panel data. 51

    3-9-2. Estimation of regression models with panel data. 51

    3-9-3. Tests for selection of estimation methods in panel data. 54

    3-9-4. Reliability test in panel data. 55

    Chapter Four: Model estimation and results

    4-1. Introduction. 57

    4-2. Model specification. 57

    4-3. Model estimation. 58

    4-3-1. F test and choice of common effects and fixed effects method. 58

    4-3-2. Choosing the method of random effects and fixed effects. 59

    4-3-3. Model estimation results for Iranian banks. 60

    4-3-3-1. Private banks. 60

    4-3-3-1-1. Model estimation results (4-1) 60

    4-3-3-1-2. Hypotheses test for private banks. 62

    4-3-3-2. State banks. 67

    4-3-3-2-1. ResultsModel estimation results (4-2) 67

    4-3-3-2-2. Hypotheses testing for state banks. 68

    Chapter Five: Conclusions and Suggestions

    5-1. Introduction. 75

    5-2. Summary of seasons. 75

    5-3. Results. 75

    5-4. Suggestions. 77

    5-4-1. Practical suggestions. 77

    5-4-2. Research limitations. 78

    5-4-3. Suggestions for future research. 78

    Sources and sources. 80

    Appendix. 84

    Sources and sources

    A) Persian sources

    Eldon S. Hendrickson and Michael Efon Barda (2016), "Accounting theories", translated by Ali Parsaian, Terme Publishing House, Tehran

    Ansari, Ebrahim (2016), investigation of the factors affecting the profitability of commercial banks (case study of Saderat Bank of Iran), master's thesis, Payam Noor University, Alborz branch.

    E. C. Littleton, (1380), "The structure of accounting theory, translated by Habib A. Timuri, Audit Organization Publications, Tehran.

    Bagheri, Hamid (1386), "Analysis of the factors affecting the profitability of commercial banks (case study: Refah Bank)", Financial Research, year 8, number 21, pp. 3-26.

    Haydari, Hassan and Mola Bahrami, Ahmed (1389), "Bahineh" Creating a stock investment portfolio based on multivariate GARCH models: Evidence from Tehran Stock Exchange", Tehran University Management School, Financial Research Quarterly, Volume 12, Number 30.

    Darabi, Roya and Moulai, Ali, (2013), "The effect of liquidity variables, inflation, capital preservation, gross domestic product on Bank Mellat's profitability", Journal of Financial Knowledge of Securities Studies, Number 10, pp. 139-182.

    Rastegar Abarqaui, Akram and Alavi-Rad, Abbas and Daneshmand Shirazi, Hossein, (2013), "The effect of inflation on bank profitability, a case study of banks listed on the Tehran Stock Exchange", Second National Conference on Sustainable Development in Arid and Semi-Arid Regions, Abarkoh, Iran.

    Syed Noorani, Seyed Mohammad Reza and Amiri, Hossein and Mohammadian Adel, (2012), "Causality relationship between bank capital and profitability; With an emphasis on the supervisory aspect of capital structure", Scientific Research Quarterly, Economic Growth and Development Research, Year 2, Number 6, pp. 11-44.

    Shahbazzadeh Khaiavi, Atabek, (2013), "Investigating the Effect of Supervision on the Profitability of Iranian Banks", Master's Thesis, Tabriz University, Faculty of Economics, Management and Commerce, Department of Economics

    Salehnejad, Hassan and Ghayor, Vahidreza, (2009), "The effect of the rate of return on assets and the rate of return on equity and financial leverage on the stock price of companies listed on the Tehran Stock Exchange", Management Quarterly, 2009, No. 18, pp. 17-27.

    Sabaei, Amirmehdi, (2009), "Investigating the relationship between macroeconomic variables and profitability of Parsian Bank", Master's Thesis MBA - Strategy, University of Science and Technology Culture.

    Fadainejad, Mohammad Ismail and Mahmoodzadeh, Sona, (2013), "Investigation of the increasing information content of traditional and value-based criteria for evaluating the performance of shares of companies listed on the Tehran Stock Exchange", Perspectives of Financial and Accounting Management, No. 1, pp. 37-50

    Qalipour, Alireza, (2013), "Investigation of the effect of internal and external factors on the profitability of selected banks in Iran" ", the first national conference on the development of monetary and banking management (evolution in the management of the banking system, a step towards the economic saga, the center of international broadcasting conferences.

    Kordestani, Gholamreza and Keshavarz Hedayati, Maryam, (2012), "Accounting profit versus economic profit", Konkash magazine, pp. 118-125.

    Nofarsti, Mohammad (2018), the root of unity and consensus in econometrics, Rasa Cultural Publications. Hedayti, Ali Asghar and Kalhor, Hassan and Safri, Ali Asghar and Bahmani, Mahmoud, (2006), Internal Banking Operations - Allocation of Resources, 9th edition, Tehran: Higher Institute of Banking Publications.

    B) English sources

    Aburime, Uhomoibhi Toni (2006), "Impact of Ownership Structure on Bank Profitability in Nigeria, the Department of Banking and Finance", Faculty of Business Administration, University of Nigeria.

    Ahmad,Ashfaq(2012), "Impact of Privatization on Banking Sector Performance of Pakistan", SSRN-id2026329.

    Ali, K.; Akhtar, M.F. and Ahmed, H.Z. (2011), "Bank specific and Macroeconomic Indicators of Profitability - Empirical Evidence from the Commercial Banks of Pakistan". International Journal of Business and Social Sciences, Vol. 2, No. 6, pp: 237-241

Investigating the impact of internal and external factors on the profitability of selected public and private banks in Iran
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