The optimal size of the bank from the economic point of view and the examination of the financial health index

This study uses the Translog cost function to estimate the cost efficiency levels of private banks operating in Iran. Also, these productivity levels are analyzed under Kamels' indicators in order to provide a partial understanding of their financial situation to justify their current position. The results of the research findings of this study have been used by applying it to the Translog model [2] for the panel data of 7 scheduled banks operating in Iran from 1388 to 1391. It was found that all banks differ significantly in cost efficiency. By using the cost elasticity, we achieved a ranking of the banks, which can be named Parsian, Pasargad, Ekhetaz Navin, Saman, Karafarin, Sina, and Sarmayeh in that order. Also, the rates of Camels show that the most productive banks are the banks with the lowest amount of overdue loans, high capital adequacy, and less non-interest expenses that lead to high profitability.

Words Key: Bank size, Translog cost function, Camels indicators [1] Camels

[2] Translog Function

Introduction:

Developing countries develop in order to pass the stage of underdevelopment and achieve their goals, and overcome the obstacles and challenges in the transition stage and provide suitable platforms for the productive growth of the national economy. Among the major challenges facing these countries, the expansion and deepening of financial markets has always been emphasized by economic experts as one of the difficult and costly requirements. Financial markets reduce exchange costs in the national economy to the minimum possible level by playing a unique role in supplying, equipping and allocating financial resources and speeding up the process of national savings with appropriate compensation of financial resources. The relative advantage of producing goods and services in developing countries is mainly possible in reducing costs. One of the important factors in reducing production costs and providing efficient services is the efficient operation of economic units. On the other hand, banks play a basic role in the country's development strategies. Even in economies that have advanced financial markets, banks are at the center of financial and economic activities. In developing countries and economies in transition that have less developed financial markets, banks are mostly the only institutions that are able to mediate and can help reduce investment risk in various ways and increase economic growth. It takes place, while the experience of the recent financial crisis and the destructive effects caused by the transfer of the crisis from the monetary sector to the real sector of the economy has revealed the need to pay more attention to the category of risk management in banking activities. However, Iran's private companies also need to use modern and practical banking and financial services. While Iran's private banks are still small compared to large state banks, they can be the missing link in serving businesses in this country. Banks and financial and credit institutions play a very important role in the economic progress and development of any country. Currently, due to the significant number of banks and financial and credit institutions in the country, as well as due to the process of privatization of state-owned banks and the conversion of credit cooperatives and financial institutions into banks, evaluating their performance has become particularly important. Banks are evaluated by various methods and with various factors, and the size of banks is determined and measured by various criteria and factors. One of the appropriate factors in comparing the size of banks with each other is the share of that bank in attracting deposits in the market. Any bank that can allocate a larger share of deposits is able to lend and invest more, which can lead to an increase in bank profitability in the case of credit risk management.In this regard, the current research is trying to measure an economic enterprise to provide more profitability in the enterprise, and one of the important factors in creating economic benefits can be the collection of cost benefits through a large-sized bank.  The size and scale depends on factors such as the market size of that company, economic flow or management preferences. The purpose of this research is to conduct an empirical study of the relative cost efficiency of banks operating in Iran. Due to the prominent role of the banking industry in the financial sector of Iran with a share equal to 65% of the total assets of the financial system, the focus of this study is on the banking industry. It is assumed that all banks are operating under the macroeconomic conditions, similar prudential rules.

The result of this research can help the policy makers in formulating appropriate policies in order to remove the obstacles on the way of efficient banking activities and provide the necessary platform for economic growth and development. are provided to the departments that need liquidity. Therefore, banks are considered the vital artery of every country. Along with the entry of private banks into the financial markets, the demand for various types of banking services has also increased significantly. Banks seek to use various methods to improve performance in attracting customers in order to overtake each other in order to increase market share and profitability, in the meantime, evaluating the performance of banks is of particular importance and has become one of the most important activities of bank managers. Banks are evaluated by various methods and with various factors, and the size of banks is determined and measured by various criteria and factors. The word scale is much more limited than the word size. If increasing the scale of an economic unit is considered, all inputs, both fixed and variable, must increase in the same proportion. In this case, if the level of production increases with the same scale as the inputs have increased, there will be no difference in terms of savings. Economies of scale exist if output increases at a greater rate than inputs. Economic saving is a state in which the production cost of each unit of product is reduced while increasing the production of a unit of operation. Theoretically, the best size of a production unit is a volume of production in which the average cost is at its minimum, and that level of production is called the optimal production level. Since cost competitiveness and financial health are important factors in determining the cost efficiency/inefficiency of banks, this study is suitable for estimating the distinct efficiency level of each bank through a frontier approach. pays and evaluates its financial health using various financial indicators.

1-4- Necessity of conducting research

Banks are financial institutions that collect assets from various sources and provide them to the sectors that need liquidity. Therefore, banks are considered the vital artery of every country. Along with the entry of private banks into the financial markets, the demand for all kinds of banking services has also increased significantly. The amount of assets, the share of each bank in the deposit market, the level of productivity, the number of branches, the growth and development of using new financial methods of electronic banking and so on. All of them are part of the factors that can influence the size of the bank. The problems that arose in the repayment of bank loans in the 1970s and 1980s revealed the importance of banks having sufficient capital to face the risks of non-fulfillment of obligations by borrowers. Therefore, in order to deal with this unpleasant experience, the amendment of regulations governing the proper size of banks' capital was put in the focus of banking supervision assemblies. Realizing this necessity, the Banking Regulation and Supervision Committee of Basel, Switzerland, in short, urged the Ball Committee to consider the importance of preventive regulations in the field of having adequate capital, and put the development of appropriate capital adequacy standards [1] for banks on their agenda, which is why in the following years it will gain an important position in the banking and professional circles of the world.