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Estimation of Bank Loan Interest Rate and Determining its Correlated Factors: A Case Study of Listed Companies in Iran

Nateghi, Morteza | 2020

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 53163 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Madanizadeh, Ali; Mahmoodzadeh, Amineh
  7. Abstract:
  8. Bank loans are one of the main sources of financing for enterprises and the most important source of financing for large enterprises in Iran. Uncertainty about future conditions and asymmetric information between the bank and the firm puts the provision of loans at risk. According to the principle of proportionality of risk and return, the interest rate of bank facilities should be proportional to the risk that the bank incurs in return for granting the loan. In general, the interest rate of bank loans can be affected by three types of risks: the credit risk of the applicant firm, the risk of the lender bank and the macroeconomic environment risk. In this study, we try to estimate the interest rate of bank loans in Iran according to these risks. Estimation of this rate can reveal the value of this hidden variable in the Iranian economy and show the impact of various economic factors on it. Findings of this study show that in the variables that represent the firm's credit risk, working capital ratio, net profit ratio and fixed assets ratio have a negative and significant correlation with loan interest rate and positive and significant correlation with debt ratio. Regarding the variables related to the risk of the bank's activity, in general, the correlation between the ratio of administration costs and the interest rate is positive and significant. Separating the bank groups, it can be seen that the correlation between the ratio of administration costs in the group of private and privatized banks and also the ratio of NPL (non-performing loan) in the group of state-owned banks with the loan rate is positive and this relationship is significant. The connection between the bank and the firm, which reduce the uncertainty and information asymmetry, also reduce the interest rate of the loan. In this regard, the correlation between the amount of loans granted and the interest rate is negative and significant. Also, the increase in the percentage of ownership of the bank's voting rights in the firm is accompanied by a decrease in the interest rate of the loan. In different bank groups, private and privatized banks have, on average, higher interest rates than state-owned and specialized banks. The interest rate approved by the Monetary and Credit Council is also an important explanatory factor for the changes in the loan interest rate. The results of the model indicate a strong correlation between the loan interest rate and the rate approved by the Monetary and Credit Council, so that the approved rate largely explains the changes in the average loan interest rate over different years
  9. Keywords:
  10. Credit Risk ; Interest Rate Model ; Bank Health ; Coupon Rate ; Related Lending ; Bank-lending Channel ; Bank Loan

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