A Clustering Approach for Business Models of Iranian Banks; Analysis of Risks and Migrations

Abstract

Various studies have shown that different banking business models are related to several variables that will change banks' strategies and impose various risks. This paper examines the data from 2006 to 2021 for 33 Iranian banks while identifying different variables affecting business models. K-Means, FCM, and PAM clustering approaches are used to cluster different Iranian banks. Also, by analyzing the liquidity risk, credit risk, and insolvency risk, the impact of the business model on various risks is examined. In the following, the changes in banks' business models are examined by carefully analyzing the state of different business models from 2006-2021. We found that banking business models shifted from SME-invested banks to SMEoperating during shock periods, while the change is reversed during stable periods. Furthermore, large public banks have a small tendency to become large-funding banks in a period of economic stability.