Determinants of Financial efficiency in Iranian banking system

The purpose of this paper is to estimate the efficiency of bankingindustry in Iran and measurement of effective factors on the industry. In this research the information of 10 state banks, including 6 nonspecialized commercial banks (Mellat, Tejarat, Refah, Saderat, Melli, Sepah), 4 specialized banks (Export Development, Housing, Agriculture, Mine &Industry) and 4 private banks (Parsian, EN Bank, Saman, Karafarin) for the period of 2003-2007 has been utilized. The efficiency of the banks has been ranked based upon due consideration of banks as mediators through SFA parametric method and Cub- Douglas profit function. The most efficient bank during the study period was Parsian bank, and the least efficient one was Sepah bank. The outcomes reveal that the average efficiency of private banks is higher than state banks and the specialized state banks performed more efficiently than commercial state banks. Afterwards, the estimates of efficiency obtained in the first stage were regressed on determining factors through tobit regression. The outcome was that specializing the activities and private ownership have direct effect on efficiency, but the number of employees and total assets as indexes of size have negative relationship with efficiency of profit. Variables of facilities, investments, financial capital price (interest paid on the deposits) had effects on the profit and they have been in the confidence interval of 95%, whereas variables of physical capital price, labor price and deposits with other banks had no effects on the profit.