Loan Portfolio Diversification, Market Structure and Financial Stability of Banks

The purpose of this study is to investigate the effect of bank loan portfolio diversification and market structure on the financial stability of banks in the countrychr('39')s capital market. In order to achieve the above goal, the financial data of 17 banks have been used as unbalanced panels in the period from 2005 to 2018. In this study, data analysis was performed using fixed effects models and generalized method of moments (GMM). The results show that diversification and market centralized structure have a positive and significant effect on bankschr('39') financial stability, and the effect of loan diversification on financial stability depends on the level of market concentration. Also, by examining the effect of independent variables on the components of financial stability index, the results show that the diversity of loan portfolio and bank market structure has a positive effect on return on assets and a negative and significant effect on deviation of return on assets. It had a negative effect on the ratio of capital to assets.