Macroeconomic Uncertainty and Investment Decisions of Banks

In times of uncertainty, the planning, decision-making and policy-making process in all sectors of the economy is disrupted due to the impossibility of predicting the future. The present study seeks to investigate the uncertainty effects of macroeconomics on investment decisions of Iranian banks over a 15-year period (2004-2018) using the seasonal data of 15 domestic banks experimentally. For this purpose, first the generalized conditional variance of inflation, exchange rate, economic growth rate and oil price indicators is estimated and then the effect of their average weight as an uncertainty indicator of macroeconomics on banks' investment decisions is identified by panel data method. Our empirical results show a significant relationship between banks' credit portfolio variation and macroeconomic uncertainty. In other words, as the macroeconomic uncertainty and banks' inability to predict their rate of returns on different assets increase, they allocate less resources to risky assets and more resources to safe assets. Also, there is a significant relationship between bank's specific risk and its investment decision. In other words, as the variance of bank's specific indices increase, the dispersion of risky assets in bank's portfolio increases.