Examining the Effect of Smart Contract Features on Factors Affecting the Reduction of Non-Performing Bank Loans

Peyman  Raziei; Seyyed Shamseddin Hosseini; Seyyed Yahya  Abtahi

Authors

Peyman Raziei Researcher, Department of Economics, SR.C., Islamic Azad University, Tehran, Iran Author https://orcid.org/0009-0002-9888-6403
Seyyed Shamseddin Hosseini Associate Professor, Department of Business Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran https://orcid.org/0000-0001-8337-5796
Seyyed Yahya Abtahi Associate Professor, Financial Management Department, Faculty of Management, Ya.C., Islamic Azad University, Yazd, Iran Author https://orcid.org/0000-0002-4034-5439

Keywords:

smart contracts, non-performing bank loans, blockchain, smart contract features, panel data

Abstract

Non-performing bank loans are among the fundamental challenges facing Iran’s banking system. Blockchain-based smart contracts, owing to their distinctive characteristics, have considerable potential for managing such loans. The present study aimed to examine the effect of smart contract features on factors affecting the reduction of non-performing bank loans. In terms of purpose, this research is applied, and in terms of methodology, it is descriptive-correlational. The statistical population consisted of 26 banks active on the Tehran Stock Exchange during the 2012–2025 period. A fixed-effects panel data regression model was employed to test the hypotheses using EViews software. Ten key smart contract features—including self-execution, use of blockchain, transparency, elimination of intermediaries, cost reduction, security, speed, real-time monitoring, interoperability, and automatic collateral registration—were considered as independent variables, while the score of factors affecting the reduction of non-performing bank loans was considered the dependent variable. The results of testing the second hypothesis indicated that all ten smart contract features had positive and statistically significant effects on the reduction of non-performing bank loans at the 95% confidence level. The F-statistic was 25.431 (Prob. = 0.000), and the adjusted coefficient of determination was 0.255, indicating an adequate model fit. The Durbin–Watson statistic (1.831) also confirmed the absence of autocorrelation. Smart contract features, particularly self-execution, transparency, security, and automatic registration, can directly and significantly contribute to reducing non-performing bank loans. These findings indicate that developing the technical and legal infrastructure required to implement smart contracts in Iran’s banking system could provide an effective approach to credit risk management and substantially reduce non-performing bank loans.

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