Five Year Developing Program (FYDP) And Evolution of Problem loans In Iran: An Empirical Investigation

Strategic plans of Iran government in the form of Five Year Developing Program have led to some monetary policies by CBI1 which in turn have brought about bank credit policies. In this paper we examine the factors affecting problem loans of Iranian banks for the period 2005-2010 , taking into account both macroeconomic and microeconomic variables. This study has been done by employing advanced panel data techniques. The findings show that at the macro level, GDP growth and real Interest Rate and at the bank level (micro level), real loan growth and bank size play an important role in affecting problem loans. At the bank level several policies have been implicated from analysis that proper employment of them enables managing credit risk across the portfolio. Finally compatibility of these policies with FYDP s instructions is checked.