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The Impact of Credit Loans Diversification on Profitability,
Risk, and Financial Stability of Development Banks
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Payam Noroozi   , Hassan Heydari * , Amir Hossein Mozayani , Bahram Sahabi |
| Economical Science, Faculty of Management and Economics, Tarbiat Modares University , hassan.heydari@modares.ac.ir |
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Abstract: (53 Views) |
This study investigates the influence of credit loan diversification on the profitability, risk exposure, and financial stability of development banks in Iran. Development banks are essential for sustainable economic growth by financing various projects, but over-reliance on a single credit facility type escalates default risk. Analysis of data from five Iranian development banks between 2009 and 2023 reveals that broadening the credit mix significantly boosts profitability, lowers earnings volatility, and enhances financial stability. This diversification strategy effectively reduces risk concentration and improves resource management, thereby strengthening overall bank performance. Key banking health indicators also contribute to stability. However, the findings indicate that without robust risk management frameworks, excessive diversification can lead to increased monitoring costs and operational inefficiencies. Therefore, a balanced credit allocation strategy is crucial to maximize financial returns while ensuring stability. Integrating strong risk management policies with diversification efforts is vital for achieving sustainable outcomes in Iran's development banking sector. Regulatory and incentive policies should actively encourage development banks to diversify their loan portfolios and reduce dependency on specific lending types.
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| Keywords: Dynamic Panel Data, Development Banks, Risk, Financial Stability, and the Blundell-Bond Model |
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Full-Text [PDF 1002 kb]
(51 Downloads)
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Type of Study: Applicable |
Subject:
Special
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