Development and Validation of a Model for Assessing the Impact of Banking Risks on the Sustainability of the Iranian Banking System
Keywords:
Banking risks, banking system stability, liquidity risk, credit risk, operational riskAbstract
Objective: The objective of this study is to develop and validate a model for assessing the impact of major banking risks—including credit, liquidity, market, and operational risks—on the sustainability of the Iranian banking system.
Methodology: This applied and descriptive–survey study employed a researcher-made questionnaire based on five main constructs to collect data from senior managers, risk experts, and internal auditors of commercial and specialized banks in Iran, with a purposive sample of 120 respondents. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) through SmartPLS 4. Construct validity was examined using outer loadings, composite reliability, and average variance extracted, all of which met acceptable thresholds. The structural model was then evaluated to test the proposed hypotheses regarding the relationships between banking risks and banking system sustainability.
Findings: Results indicated that all direct paths from banking risks to banking system sustainability were negative and statistically significant (p<0.001). Market risk had the strongest negative effect (β = -0.262), followed by operational risk (β = -0.244), liquidity risk (β = -0.229), and credit risk (β = -0.231). The overall model explained 39.3% of the variance in banking sustainability (R² = 0.393). All factor loadings exceeded 0.7 and t-values exceeded 9, confirming strong measurement validity and significance of the structural relationships.
Conclusion: The findings demonstrate that increases in banking risks significantly undermine the sustainability of the Iranian banking system, highlighting the necessity of strengthening enterprise-wide risk management, enhancing capital adequacy, and improving macro-prudential supervisory mechanisms to reinforce systemic resilience.
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