Volume 30, Issue 4 (Winter 2026)
JEPR 2026, 30(4): 43-106 |
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Jalali Naeini S A, Bagheri S. (2026). Banking System Challenges, Risk Accumulation in the Banking Network, Credit Crunch and its Real Effects - A Review of the Literature and Evidence from Iran. JEPR. 30(4), 43-106.
URL: http://eprj.ir/article-1-2419-en.html
URL: http://eprj.ir/article-1-2419-en.html
1- Professor, Department of Economics and Systems, Institute for Management and Planning Studies (IMPS), Tehran, Iran.
2- Ph.D. Student of Economics, Institute for Management and Planning Studies (IMPS), Tehran, Iran. ,Bagherisoroush@gmail.com
2- Ph.D. Student of Economics, Institute for Management and Planning Studies (IMPS), Tehran, Iran. ,
Abstract: (985 Views)
Statistical evidence from the Iranian economy indicates that the banking system has been significantly affected by macroeconomic cycles driven by exogenous shocks, particularly terms-of-trade fluctuations and economic sanctions. These shocks have intensified long-standing banking sector problems, including adverse selection and moral hazard. The condition of banks’ balance sheets has been further weakened by illicit practices, risk concentration through connected lending, and deficiencies in lending procedures. The lack of effective monitoring and regulatory oversight has contributed to the persistence and deepening of balance-sheet imbalances. As a result, high levels of non-performing and rescheduled loans have become structural characteristics of the banking system. At the same time, the accumulation of illiquid assets - particularly in bank-owned holding companies and real estate investments - has expanded considerably. In addition, increasing claims on the government have intensified banks’ cash-flow constraints and balance-sheet pressures. Collectively, these developments have not only weakened banking soundness indicators but have also substantially reduced the banking system’s ability to fulfill its essential role in credit provision and financial intermediation. This article reviews the major challenges facing Iran’s banking system in light of the relevant theoretical literature. It also examines empirical evidence on risk accumulation and credit crunch conditions within the Iranian banking sector and evaluates their implications for the real economy.
Type of Study: Review |
Subject:
Macroeconomics
Received: Feb 06 2026 | Accepted: Apr 19 2026 | ePublished: Jun 29 2026
Received: Feb 06 2026 | Accepted: Apr 19 2026 | ePublished: Jun 29 2026
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