Analyzing the Impact of Banking Imbalance on Economic Welfare in Iran

Shahryar Zaroki, Sahar Nasrnejad Nesheli and Fatemeh Hajitabar Sangroudi
Additional contact information
Shahryar Zaroki: Associate Professor in Energy Economics, Faculty of Economics and Administrative Sciences, University of Mazandaran, Babolsar, Iran
Sahar Nasrnejad Nesheli: PhD. Student in Economics, Faculty of Economics, University of Allameh Tabatabai, Tehran, Iran
Fatemeh Hajitabar Sangroudi: PhD. Student in Economics, Faculty of Economics, University of Allameh Tabatabai, Tehran, Iran

Quarterly Journal of Applied Theories of Economics, 2026, vol. 13, issue 1, 61-88

Abstract: Given the economy’s dependence on banks as the primary source of corporate financing, the performance of the banking system significantly affects the broader economy. Banking system performance is typically assessed through its balance sheet. This study examines the reality that when this crucial financial statement becomes imbalanced, how economic welfare is affected. Considering the importance of this issue, the present study employs the Autoregressive Distributed Lag (ARDL) approach to estimate the impact of banking imbalance on economic welfare over the period 1978–2022 in two frameworks. In the first framework, bank debt growth to the central bank is used as an indicator of banking imbalance, while in the second framework, government debt growth to the central bank is employed to strengthen the robustness of the results. The composite economic welfare index is used to measure economic welfare. The movement of the economic welfare index indicates that during the study period, it fluctuated around an average of 40.26. Similarly, the growth of bank debt to the central bank and government debt to the central bank showed fluctuations, with averages of 1.29 and -3.56, respectively. Long-term estimation results indicate that banking imbalance (based on both indicators) has a negative effect on economic welfare. Additionally, per capita income and economic growth have positive effects, while inflation has a negative impact on economic welfare. Based on the results, ensuring the stability and soundness of bank balance sheets is crucial for maintaining economic stability, promoting sustainable growth, and ultimately enhancing economic welfare. Therefore, it is recommended that measures to reduce banking imbalance be implemented, such as reforming the banking system, converting non-productive bank assets into securities, preventing the transformation of banks’ overdrafts into credit lines, reducing mandatory lending, and ensuring adequate bank capital.

Keywords: Banking Imbalance; Economic Welfare; Iran (search for similar items in EconPapers)
JEL-codes: D60 E02 G21 (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ecoj.tabrizu.ac.ir/article_20244_ead86f25a3325a3b1e4fb0783a8d8414.pdf
https://ecoj.tabrizu.ac.ir/article_20244_ead86f25a3325a3b1e4fb0783a8d8414.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:qjatoe:023065

DOI: 10.22034/ecoj.2025.65186.3386

Access Statistics for this article

Quarterly Journal of Applied Theories of Economics is currently edited by Sakineh Sojoodi

More articles in Quarterly Journal of Applied Theories of Economics from Faculty of Economics, Management and Business, University of Tabriz Contact information at EDIRC.
Bibliographic data for series maintained by Sakineh Sojoodi ().