Document Type : Original Article
Authors
1 Faculty Member, Monetary and Banking Research Institute
2 M. A in Financial Management, Islamic Azad University, Science and Research Branch
Abstract
One of the key indicators in the banking sector is bank leverage. Bank leverage refers to how resources are used in the balance sheet to finance the assets. The quality of banking assets has a significant impact on lending in banks. The proper use of bank leverage can lead to getting appropriate profit and reducing many of the bank's problems when managing the risks. Besides the internal factors, the creation of bank leverage is also influenced by the economic factors in each country. During the recent financial crisis, much attention was paid to the balance sheet balance of the banks. How to use bank leverage is one of the most important and challenging issues every bank faces. Considering the role and importance of bank leverage as the most important channel for passing on economic blockages, bank's profitability influenced by this factor has a prominent role in investment decisions. Leverage allows a financial institution to increase its potential profits and decrease its losses on a specific financial position.
For data analysis, a panel regression model based on generalized method of moments has been used by employing data during the years 2006-2016. The results show a positive and significant linear relationship between the bank leverage and the profitability. The results also demonstrate that the higher bank leverage, the more profit banks can obtain. Moreover, more analysis to determine the relationship between liquidity variables, deposits, bank size, facility ratios and inflation has been expanded. Hence, by increasing the profitability of banks, it is possible to strengthen the credibility of banks, and by increasing the credit to the economy, effective steps can be taken on employment and production in the economy.
Keywords
)