The Effect of Gap Between Non Performing Loans (NPL) Ratio and Its National Standard Limit on Macroeconomic Variables

The Iran’s economy is considered to be largely bank oriented in order to finance the economic sectors. In recent years, the increasing trend of nonperforming loans from the 5 percent international standard, due to the increased credit risk of banks, has been reduced from their ability to provide credits and thus has led to credit bottlenecks. This paper, by using structural macroeconometric model in the period of 1967-2015, has investigated the effectiveness of Gap Between Non Performing Loans Ratio and Its National Standard Limit on the macroeconomic variables as well as the effectiveness of expansionary monetary policy in these conditions on macroeconomic variables. The dynamic simulation results greater than of the model show that, in the conditions of the Iranian economy, where the NPL ratio of than 5 percent ratio of the international standard, the power of providing credit by the banking system has decreased by an average of 23.8 percent. By reducing the ability of banks to provide credits, macroeconomic variables such as the utilization rate of production capacities, investment, employment and GDP were on average 2.9, 7.7, 2 and 3 percent have decreased. Also, with the increase in the ratio of nonperforming loans from a level of 5 percent, the effect of expansionary monetary policy on the power of providing credit by the banking system has decreased by an average of 25.6 percent. As a result, the macroeconomic variables including utilization rates of production capacities, investment, employment and GDP, have also declined by an average of 3.2, 8.3, 2.2 and 3.1 percent