||Main function of a bank is financial intermediation. Banks as intermediaries collect deposits from general public and facilitate economic unit’s activities by lending money to them in form of various types of loan contracts. Part of those loans may not be collected on time or not to be received at all. Consequently, the bank will suffer losses and would not be able to receive expected interests in order to pay to the depositors. In other word, bank faces default risk.
To pay the interest to the depositors and compensate banking costs, the amounts of interest received on lending regulation should cover depositors’ interests, banking costs and also losses due to fault claims.
The hypothesis of this dissertation is proving or rejecting the meaningful relation or correlation between the effective interest received of various types of loans and credit risk of those types of loans.
In this dissertation the effective interest rate on loansis defined as dependent variable and ratio of uncollected and delayed amounts of various loans to their respective totals is defined as independent variable.
To test the hypothesis, financial data of 1993 to 2003 of bank Saderat Tehran were collected and analyzed by means of statistical measures i.e., regression and correlation analysis.
Those statistical measures were applied to loans in different economic sectors and various loans contracts. The above analysis, namely regression between the effective rate of interest on loan and ratio of delayed and uncollected loans to total of various types of loans during the 1993-2003 period showed no meaningful relation between those two variables. In other word, the effective rate of various types of loans is not based on the credit risk of each type of loans.