Economic Growth Vulnerability from the Crisis of Credit Risk Management in the Iranian Banking Network

Loans are the largest asset and at the same time the largest source of credit risk for Iranian banking network. In fact, credit risk that may arise from a borrower failing to make required payments is one of the most important risks facing banks due to various reasons including the lack of credit standards, poor management of loans basket and the lack of attention to economic changes. Despite the importance of managing credit risk, we still observe a high level of credit risk for Iranian banks. Therefore, it is imperative that banks consider appropriate methods to measure credit risk and manage them in standardized ways and consider the capital needed to cover them. In this study, suitable criteria for assessing credit risks have been selected based on theoretical and empirical international advanced level literature. Then a critical threshold for credit risk management has been extracted using a kernel distribution function. Moreover, panel regression is employed to show the possible effect of the crisis of credit risk management on economic growth using the financial statements of Iranian banks and macroeconomic variables such as economic growth, inflation and interest rate during the period 1385-1394. The results also indicate that whenever the banking network performs poorly in credit risk management, the economic growth decreases with more severe trends