Track: Simulation Competition
Abstract
In traditional business models of banking in developing economies, banks earn profit by attracting deposits and offering mortgages to customers. This approach has been for many years a predominant business model, while their key performance indicators (KPI) show lack of business profitability. This issue is a diversion from the primary purpose of profitability initially built in the business model, and is called the profitability paradox. In this research, the data of financial statements of a private bank in Iran between 2012 and 2016 was used to define and represent the profitability paradox problem. To find causes of this problem and provide effective solutions, a system dynamics methodology has been applied. A holistic system model of the problem is represented to depict the causal structure of behavior of the profitability paradox. The results show that a suitable strategy for profitability, would be a shift from the interest income-based structure to the service-based structure.