Document Type : Original Article
Authors
1 Ph.D. in Economics, Department of Economics, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran.
2 Assistant Professor, Statistical Center, Tehran, Iran
Abstract
Nowadays, economic policy uncertainty is recognized as one of the key factors influencing the performance of economic agents. This impact is particularly significant in developing countries due to frequent policy changes implemented by governments. Among various sectors, the banking system is not immune to these effects, given its extensive interactions with other economic sectors. Economic policy uncertainty can disrupt the proper functioning of the banking system by increasing non-performing loans (NPLs) and, consequently, elevating credit risk. This issue is especially critical in economies like Iran, where the banking system plays a pivotal role in financial intermediation. This study aims to examine the effect of economic policy uncertainty on non-performing loans in Fars province during the period 2011–2021 using the Generalized Method of Moments (GMM). The results indicate that rising economic policy uncertainty leads to an increase in non-performing loans. Additionally, higher interest rates, unemployment rates, the ratio of loans to deposits, and banking concentration positively affect non-performing loans. Conversely, an increase in inflation, bank size, and the share of private banks in total banking resources contribute to a reduction in non-performing loans. It is recommended that economic policymakers move towards greater transparency in fiscal, monetary, and exchange rate policies to reduce uncertainty, enhance economic predictability, and subsequently lower non-performing loans.
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