Abstract:
The bank interest rate is one of the most important macro variables in the economy of any country. The aim of this article is to find the relationship between the interest rate of bank loans and three main money market variables (deposit interest rate, inflation rate, and banks' credit risk). In this article, using a simultaneous equations model and employing the three-stage least squares method, four equations for the loan interest rate, deposit interest rate, inflation rate, and credit risk were estimated. The results show that during the years 1986-2017 in the Iranian economy, the loan interest rate has a positive and significant relationship with the deposit interest rate, which is one of the most important banking variables. Such that with an increase in the deposit interest rate, the loan interest rate also increases. It was also found that the loan interest rate has a negative and significant relationship with the inflation rate, which expresses the fact that with an increase in inflation, the loan interest rate decreases; since in Iran the interest rate is determined by mandate, this result is not unexpected. The loan interest rate and credit risk also have a positive and significant relationship, indicating that when the loan interest rate increases, the probability of non-payment by borrowers also increases. Additionally, the inflation rate has a positive relationship with liquidity volume and the exchange rate, which is consistent with reality.
Machine summary:
The aim of the present article is to find the relationship between the interest rate of bank loans and three main variables of the money market (deposit interest rate, inflation rate, and credit risk of banks).
Nazarian and Hamzehei (2014), in a thesis titled "The Impact of Monetary Policies on Bank Facilities Based on Bank Profitability," using the OLS method and generalized moments and employing the country's economic information including the real exchange rate and the amount of facilities granted by banks and credit institutions during the years 1988-2011, the estimation results show that there is a positive and significant value for the coefficient of the bank profitability variable and the existence of a positive relationship for bank size, monetary conditions index, and economic growth rate, and a negative relationship for the variables of assets, liquidity, and bank capital.
(2012), examined the trend of decreasing bank facility interest rates and its role in the inflation index during the years 1997-2006 and in this study used the Vector Autoregression (VAR) method and have used the Error Correction Model to estimate the short-term relationship between these two variables.
Given the theoretical foundations presented in the research and the existence of a theoretical relationship between the research variables, the simultaneous equation system includes 4 equations as follows: (Refer to the page image) where in the above equations we have: irf = facility interest rate; ird = deposit interest rate; inf = inflation rate; m2 = liquidity volume; er = exchange rate (dollar); CRISK = credit risk.
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