Analysis of the Effect of Financial Supervision Quality on the Credit Risk of Banks in Iran by Quantile Panel Regression

Asymmetric information in financial markets and the possibility of encouraging bank managers to make risky choices can jeopardize the interests of investors. Financial supervision by controlling the riskiness of banks is one of the ways to protect investors. Although the main burden of financing in Iran falls on banks, overdue receivables can undermine this function. In this article, the effect of financial supervision components on credit risk of 14 commercial banks during the period 2010-2019 is investigated. Model estimation and data analysis, according to the nature of the dependent variable, ie credit risk of banks, has been done by quantile panel regression method. The results of the study show that the impact of financial supervision on the credit risk of commercial banks depends on their degree of risk; as the degree of risk of banks increases, more financial supervision variables affect credit risk. In low-risk banks, among the components of financial supervision, only the profitability index affects credit risk, but in medium-risk and high-risk banks, in addition to this index, the indicators of asset quality, liquidity quality and market risk sensitivity also affect credit risk. In high-risk banks, credit risk is also affected by the capital adequacy ratio. It is also inverse to affect all of the above variables on credit risk in different quantities.