Macroeconomic Determinants of Interest Rate Spread in Iranian Banks: ARDL Approach

The banking system of any country has a very important role in the economic growth and development of that country. One of the influential elements in the performance of the banking system is the profitability of banks. one of the most important indicators of banks' profitability is the spread or profit margin which is obtained from the difference between the average interest income from the granted facilities and the average interest paid on deposits. Determining the factors affecting profit margins and studying the short-term and long-term relationships among them. can be used for appropriate policy-making in the banking system. In this study, using Autoregressive Distributed Lag (ARDL), the effect of variables such as inflation, the volume of banking deposits and public sector debt to the banking system on Iran's banking profit margin will be determined during 1984-2016. The results of the study show that among macroeconomic factors, the volume of banking deposits has a negative effect. The public sector debt to the banking system has a positive and meaningful effect on the banking margin. Also, the effect of inflation is neutral in the long run.