Identifying and Assessing Effective Factors on Iranian Banking System's Challenges

In recent years, the banking system in Iran has faced a variety of challenges. Different methods and at times contradicting ones have been suggested and in occasions conducted in order to confront the mentioned challenges. The author believes that in confronting the problems, exact acknowledgement of them and correct diagnosis of symptoms regarding the reason and roots of the problems are of major importance. Therefore, in this paper, after reviewing previous studies regarding challenges of the banking system, by utilizing the experiences gained in recent years, the author attempts to elaborate the effective institutional roots of each problem, at the same time, recognizing and introducing important banking system challenges with new institutionalized approach. According to the findings of this research, main challenges of the banking system are as follows: aggressive interest rates, ambiguities concerning the sharia soundness of bank activities, non-performing loans, aggressive bank overdrafts, misallocation of resources, central bank's weakness in supervising the banks, problems in structure and apportion of duties in banks, deficiencies in banks’ and other information systems, deficiencies in monetary policies and instruments as well as intervention laws in bank works. By using the Williamson model, initially, prominent signs of these challenges are elaborated and then their root causes are explained in three levels: informal institutions and norms, formal institutions and rules and governance. In summary, in the highest levels, six factors are related to informal institutions, norms and culture. Twenty seven factors are related to formal institutional level and nine factors to governance level. These factors have given rise to appearance of 35 signs (problems) in the banking system of the country.