Analysis of the Causal Relationships between Capital Adequacy, Liquidity, and Profitability Indicators of Banks within the Framework of the Central Bank of Iran's Regulatory Regulations Using the DEMATEL Approach
Keywords:
Capital adequacy, Banking regulations, Profitability , Liquidity, Bank performanceAbstract
The objective of this study is to analyze the causal relationships among capital adequacy, liquidity, and profitability indicators of banks within the framework of the Central Bank of Iran's regulatory system using the DEMATEL approach to explain the role of supervisory factors in improving bank performance. This applied descriptive research used documentary analysis and pairwise comparison questionnaires. The statistical population included 15 senior banking experts and officials from the Central Bank of Iran selected purposefully. Data were analyzed through the fuzzy DEMATEL method to determine causal and effect relationships among the main variables. The DEMATEL results indicated that liquidity, profitability, regulatory factors, and capital adequacy significantly affect bank performance. Regulatory factors had the highest causal impact (mean 18.740), followed by capital adequacy (9.497) and liquidity (8.742), while profitability had the highest effect-receiving score (14.975) and no causal influence on other factors. The causal model revealed that regulatory policies primarily affect capital adequacy and liquidity, which subsequently influence profitability. Regulatory mechanisms play a pivotal role in shaping the stability and profitability of Iranian banks. Efficient regulation not only strengthens liquidity and capital adequacy but also fosters sustainable profitability. Hence, optimizing the Central Bank’s regulatory framework can enhance the resilience and overall performance of the banking sector.
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Copyright (c) 2025 Ebrahim Azarkamand (Author); Seyed Rasoul Hosseini (Corresponding author); Vahid Mahmoudi, Habib Amirbeiki Langroodi (Author)
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