The Effect of Inflation, Exchange Rate, and Risk-taking Adjusting Variable on Banks' Efficiency with the Bayesian Model Approach

Banks are one of the most important institutions and an essential element of the financial system of any economy as they play a decisive role in economic development and growth. The role of banks as intermediaries in attracting deposits and redistributing them in the form of investment and granting facilities, if done efficiently, will be able to provide the necessary basis for achieving economic growth and development. Therefore, there is always the question about the performance of banks, to what extent and degree of efficiency do banks operate in an economy, and what are the factors influencing them? On the other hand, due to the global financial crisis of 2007-2008, caused by banks' excessive risk-taking, risk-taking is recognized as an influential factor in the banking production process, which should be properly considered in performance measurement models. Therefore, in this study, a random boundary model with random inefficiency coefficients has been used, which can identify the effects of environmental factors such as inflation rate and exchange rate fluctuations on inefficiency. It also shows the role of risk-taking in designing inefficiencies and the various effects of risk on efficiency. To estimate the model, the data of 16 banks from the years 2006 to 2018 have been used according to the available data. Based on the results; Increasing inflation and exchange rate and credit risk have a negative effect and increasing capital risk and market risk have a positive effect on the efficiency of banks.