Applying Balance Sheet Approach, the effects of exchange rate appreciation on the financial stability of banking sector is investigated during 1380-1388. In balance sheet approach, Net Financial Position (NFP) Index is used to measure financial stability. This index equals financial assets minus financial liabilities divided by total assets. To test the effect of exchange rate appreciation, NFP index is calculated after exchange rate appreciation. Results show that due to the low financial relations of the banking sector with the foreign sector and little increase in exchange rate during the underlying period, exchange rate appreciation, has a small effect on banking sector financial stability. In first years of the period, exchange rate appreciation had increased the financial instability of banking sector a bit, but in last years of the period, exchange rate appreciation had a small and  positive effect on the stability of banking sector.