Document Type : Original Article
Authors
1
Assistant Professor, Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran.
2
Associate Professor, Department of Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran.
3
Associate Professor, Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran.
4
PhD Student in Finance, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran
10.22034/es.2026.550930.1899
Abstract
Financial stability and the soundness of the banking system are among the fundamental pillars of the general policies of the Islamic Republic of Iran in the monetary and banking sector. This study aims to analyze the impact of government credit policies, banking efficiency, and competition on the default risk of listed banks in Iran’s capital market. Accordingly, the market-based Distance to Capital (DTC) index was estimated using the KMV model for 10 banks over the period 2011–2022, and the effects of the mentioned variables were examined through panel data analysis. The results reveal that while efficiency and competition have no significant effect on default risk, government credit policies—including the accumulation of government debt to banks and the issuance of government bonds—exert a negative and significant influence on the DTC index. These findings suggest that excessive fiscal reliance on banking resources and the use of debt instruments to finance budget deficits can heighten default risk and undermine the financial stability of the banking network. Therefore, the implementation of government credit policies should be aligned with the principles outlined in the General Policies of the Monetary and Banking System, particularly in reducing fiscal dominance and strengthening the resilience of the banking sector. Adherence to these principles can foster sustainable financial stability, enhance efficiency, and promote better coordination between monetary and fiscal policies within the national economy.
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