Title: The optimisation of banking loan portfolio: a case of an Iranian commercial bank
Authors: Mahdiyeh Rezaei Chayjan; Tina Bagheri; Ahmad Kianian; Niloufar Ghafari Someh
Addresses: Faculty of Economics, University of Tehran, Tehran, Iran ' Faculty of Management, University of Tehran, Tehran, Iran ' Faculty of Economics, Shahid Beheshti University, Tehran, Iran ' Department of Industrial Engineering, Science and Research Branch, Islamic Azad University, Tehran, Iran
Abstract: As loans are the main earning assets for banks, Iranian banking sector has always been active in financing businesses through this means. Loans are considered the dominant means of finance in Iran but the evaluation process on allocation of loans is mostly retrospective. This has caused a considerable amount of default during decades. In this paper, we have focused on introducing a method of optimisation for commercial banks to create their optimum loan portfolios. To achieve this goal, we have examined different methods and we have used data on 21 industries, loan data from one of the large scale Iranian commercial banks and proposed a new method with a fresh approach to risk and return. The findings of the present study shows that the semi-variance or undesired variance method and the adjusted standard deviation to estimate the banking optimised portfolio is the most accurate technique.
Keywords: loan portfolio; optimisation; banking sector; semi variance method; risky assets.
International Journal of Financial Services Management, 2022 Vol.11 No.3, pp.190 - 215
Accepted: 19 Sep 2021
Published online: 09 Nov 2022 *