Monetary & Financial Economics

Investigating the effect of working capital facilities on the credit risk of Melli Bank of Iran

Document Type : Original Article

Authors

Seyyed Abdollah razavi 1
mahdis moraveji 2

1 Associate Professor, Department of Energy Economics and Management, ,Petroleum University of Technology

2 Ph.D student of econometrics, Al-Zahra University, Tehran, Iran

https://doi.org/10.22067/mfe.2024.89666.1449
Abstract
Banking facilities in developing countries play a pivotal role in financing and economic growth. Additionally, the strategic management of working capital is crucial for reducing credit risk and enhancing financial flexibility. While credit facilities are vital to the economy, they require effective risk management. Customer evaluation, portfolio monitoring, and managing systematic risks and non-performing loans are essential for maintaining financial stability.This study utilizes the PMG/ARDL model to examine the impact of working capital facilities on credit risk at Bank Melli Iran, seeking to determine whether these facilities influence credit risk and if proper management can mitigate such risks. The research analyzed monthly data from 35 regional management offices and ten independent branches of Melli Bank of Iran over 26 months (from April 2022 to May 2024). Working capital facilities were aggregated from data in the industrial, mining, and agricultural sectors, and credit risk was calculated by weighting three categories of non-performing loans (overdue, past due, and doubtful receivables). The stationarity analysis showed that both variables are stationary at the level. The findings indicate that the coefficient of the impact of working capital facilities on credit risk is significant. Therefore, an increase in working capital facilities, on average and assuming other conditions remain constant, reduces credit risk and decreases loan defaults.

Keywords

credit facilities
working capital
working capital facility
credit risk
Subjects
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  • Receive Date 02 September 2024
  • Revise Date 27 October 2024
  • Accept Date 03 November 2024

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