Abstract

Background: Profitability of banks is one of the main challenges facing developed and developing countries, hence, the present study focuses on this issue. Objectives: The present research aims to analyze the relationship between Banking Sector Development (BSD), Inflation Rate (IR), and profitability of banks. Methods/Approach: The research population consisted of the banks listed on Tehran Stock Exchange during 2013-2018. Finally, data on 18 banks were analyzed after screening. Data on the research variables were collected from the Tehran Stock Exchange website and the Central Bank of Iran. The hypotheses were analyzed by Eviews 9.0 with panel approach. Results: The results showed positive and significant relationships between BSD and banks profitability while there were no significant relationships between IR and banks profitability. Conclusion: Our findings demonstrate that capitalization has had the most influence on the profitability of Iranian banks between 2013 and 2018, necessitating paying attention to capitalization by senior bank executives in Iran as a developing country.