linear and non-linear effect of exchange rate on iranian banks’s financial soundness

This study investigates the linear and non-linear effects of official and non-official exchange rates on the financial soundness of iranian banks, with a focus on ownership type (private-owned, state-owned commercial, and state-owned specialized banks). using advanced econometric methodologies, including the ardl and state space methods, the analysis covers macroeconomic and bank-level data for the period 1996–2024. the study identifies distinct responses based on owner-ship type: while state-owned commercial and specialized banks are primarily affected by official exchange rates due to their reliance on government-determined rates, private banks demonstrate greater sensitivity to non-official exchange rates due to their exposure to informal currency markets. internal financial metrics also significantly influence bank stability. larger banks show greater resilience due to diversified portfolios, while high liquidity ratios positively impact short-term solvency. in contrast, over-reliance on loans and interbank liabilities increases credit and liquidity risks. macroeconomic variables such as inflation exert negative effects, while economic growth and stock market performance improve financial soundness. this analysis underscores the importance of exchange rate management, targeted policy interventions, and ownership-specific strategies to enhance banking sector resilience in emerging markets. the findings contribute to existing literature by integrating new metrics for evaluating financial soundness and examining the dual impact of iran’s exchange rate regime on banking performance