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The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey

Year 2022, Volume: 7 Issue: 17, 129 - 140, 27.02.2022
https://doi.org/10.25204/iktisad.1023782

Abstract

In this study, the effect of bank soundness on financial performance in the banking sector in Turkey is investigated. The study conducted on 11 banks operating in the BIST Bank Index. Industrial Development Bank was not included in the study as it left the commercial banks due to its activities. Annual data for the 2005-2019 period were used in the study. In the application model of the study, profitability ratios and market value ratios were determined as dependent variables and banking soundness index as independent variables. Kónya causality test was used as a method. The results show that there is a two-way relationship between Banking Strength Index and Market Value, and a one-way causality relationship from Profitability ratios to Banking Strength Index.

References

  • Abiad, A. (2003). Early warning systems: A survey and a regime-switching approach. IMF Working Paper, WP /03/32.
  • Allen, F. and Gale, D. (2004). Financial fragility, liquidity and asset prices. Journal of the European Economic Association, 2(6), 1015–1048.
  • Andrieş, M and Căpraru, B. (2012). Competition and efficiency in EU27 banking systems. Baltic Journal of Economics, 12(1), 41-60.
  • BRSA, (2020). Unconsolidated main indicators of the Turkish Banking Sector, Access link: file:///C:/Users/User/Downloads/HaberBulteni.pdf, Access Date: 10.12.2020.
  • Boone, J. (2008). A new way to measure competition. Economic Journal, 118, 1245-1261.
  • Bourkhis, K. and Nabi, M. S. (2013). Islamic and conventional banks' soundness during the 2007–2008 financial crisis. Review of Financial Economics, 22(2), 68-77.
  • Breusch, T. and Pagan, A. (1980). The LM test and its application to model specification in econometrics. Review of Economic Studies, 47, 239-254.
  • Coşkun, M. (2010). Money and capital markets: Institutions, Tools, Analysis. Detay Publishing.
  • Cuestas, J. C., Lucotte, Y. and Reigl, N. (2020). Banking sector concentration, competition and financial stability: The case of the Baltic Countries. Post-Communist Economies, 32(2), 215-249.
  • Demirgüç-Kunt, A., and Detragiache, E. (2011). Basel core principles and bank soundness: Does compliance matter?, Journal of Financial Stability, 7(4), 179-190.
  • Eyüboğlu, K. and Eyüboğlu, S. (2018). Investigation of the relationship between competition in the banking sector and financial soundness: Panel ARDL model for developing countries. Eskişehir Osmangazi University Journal of Economic and Administrative Sciences, 13(3), 219-234.
  • Gluzmann, P. and Guzman, M. (2017). Assessing the robustness of the relationship between financial reforms and banking crises. Journal of International Financial Markets, Institutions and Money, 49, 32-47.
  • Göksel, T. and Yılmaz, A. (2012). Relationship between banking regulations and financial stability: 1990-2010 the case of Turkey. Marmara University Journal of Economic and Administrative Sciences, 32(1), 69-94.
  • Jollife, I.T. (1986). Principle component analysis, Springer-Verlag, New York.
  • Kar, M., Nazlıoglu, Ş. and Agir, H. (2011). Financial development and economic growth nexus in the MENA countries: bootstrap panel granger causality analysis, Econ. Model. 28, 685-693.
  • Khallouli, W. and Nabi, M. S. (2013). Banking soundness and financial crises' predictability: a case study of Turkey. International Economics, 135, 62-78.
  • Kočišová, K. (2014). Banking stability index: A cross-country study. Faculty of Economics, Department of Banking and Investments. Košice, 4001, 197-208.
  • Koç, Y. D. and Karahan, F. (2017). Determinants of financial soundness in the Turkish banking sector. International Journal of Academic Value Studies, 3(15), 148-153.
  • Kónya, L. (2006). Exports and growth: Granger causality analysis on OECD countries with a panel data approach. Economic Modelling, 23(6), 978-992.
  • Kumar, M. A., Harsha, G. S., Anand, S., and Dhruva, N. R. (2012). Analyzing soundness in Indian banking: A CAMEL approach. Research Journal of Management Sciences, 1(3), 9-14.
  • Masruroh, A. and Siraj, H. (2016). The Go-Public Policy and Its Impact to The Indonesian Islamic Banking Soundness. Etikonomi, 15(1), 1-18.
  • Menyah, K., Nazlioglu, S. and Wolde-Rufael, Y. (2014). Financial development, trade openness and economic growth in African countries: new insights from a panel causality approach. Economic Modelling, 37, 386-394.
  • Mishkin, F. S. (2006). Money, banking, and financial markets. Nazım Engin (Translation Editor), İstanbul: Akademi Publishing.
  • Moyo, B. (2018). An analysis of competition, efficiency, and soundness in the South African banking sector. South African Journal of Economic and Management Sciences, 21(1), 1-14.
  • Naym, J. (2018). Competition and concentration in banking sector: Evidence from Bangladesh. 2018 Awards for Excellence in Student Research and Creative Activity – Documents. 4.
  • Park, J. (2012). Corruption, soundness of the banking sector, and economic growth: A cross-country study. Journal of International Money and Finance, 31(5), 907-929.
  • Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. IZA Discussion Paper 1240, Institute for the Study of Labor.
  • Pesaran, M.H. and Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142, 50-93. https://doi.org/10.1016/j.jeconom.2007.05.010
  • Rahim, R. A. (2017). Efficiency and competition in the Malaysian banking market: foreign versus domestic banks. Gadjah Mada International Journal of Business, 19(2), 193-221.
  • Schaeck, K. and Čihák, M. (2010). Competition, efficiency, and soundness in banking: An industrial organization perspective. European Banking Center Discussion Paper.
  • Selimler, H. and Karadağ, M. M. (2020). Evaluation of financial soundness indicators of deposit institutions by Entropy and Edas methods in Turkey and selected countries. Florya Chronicles of Political Economy, 6(1), 79-111.
  • Sere-Ejembi, A., Udom, I. S., Salihu, A., Atoi, N. V. and Yaaba, B. N. (2014). Developing banking system stability index for Nigeria. CBN Journal of Applied Statistics, 5(1), 49-77.
  • Steinbacher, M., Steinbacher, M., and Steinbacher, M. (2016). Robustness of banking networks to idiosyncratic and systemic shocks: A network-based approach. Journal of Economic Interaction and Coordination, 11(1), 95-117.
  • Taşkın, F. D. 2011. Factors affecting the performance of commercial banks in Turkey. Ege Academic Perspective, 11(2), 289-298.
  • Taşkın, F. D. (2015). Financial stability-competition relationship in Turkish banking sector. Finance Articles, 29(103), 175-204.
  • TBB. (2020). Activity report 2019-2020, Access Link: https://www.tbb.org.tr/ tr/hakkimizda /kurumsal / hakkinda /faaliyet-raporlari/17, Access Date: 01.07.2020.
  • TCMB. (2020). Financial stability, https://www.tcmb.gov.tr/wps/wcm/ connect/TR/ TCMB + TR/Main +Menu/Temel+Faaliyetler/Para+Politikasi/Finansal+Istikrar/ Access Date: 01.07.2020.
  • Tiryaki, G. and Yılmaz, A. (2012). Relationship Between Banking Regulations and Financial Stability: 1990-2010 Experience Turkey. Marmara University Journal of Economics and Administrative Sciences Faculty, 32(1), 69-94.
  • Varlık, N. and Varlık, S. (2016). The effects of risk perception on banking sector in Turkey: An assessment with banking system soundness ındex. Celal Bayar University Journal of Faculty of Economics and Administrative Sciences, 23(2), 545-563.
  • Yıldız, K., Çamurcu, Y. and Doğan, B. (2010). Principal Component analysis in data mining and comparative analysis of non-negative matrix factorization techniques, Academic Informatics’10 - XII. Academic Informatics Conference Papers, 207-213.

Finansal Sağlamlık Endeksinin Bankaların Finansal Performansına Etkisi: Türkiye'de Bir Uygulama

Year 2022, Volume: 7 Issue: 17, 129 - 140, 27.02.2022
https://doi.org/10.25204/iktisad.1023782

Abstract

Bu çalışmada, Türkiye'de bankacılık sektöründe bankanın sağlamlığının finansal performansa etkisi araştırılmıştır. Çalışma, BIST Banka Endeksi'nde faaliyet gösteren 11 banka üzerinde uygulanmıştır. Sınai Kalkınma Bankası, faaliyetleri nedeniyle ticari bankalardan ayrıldığı için çalışmaya dahil edilmemiştir. Çalışmada 2005-2019 dönemine ait yıllık veriler kullanılmıştır. Çalışmanın uygulama modelinde bağımlı değişken olarak karlılık oranları ve piyasa değeri oranları, bağımsız değişkenler olarak bankacılık sağlamlığı endeksi belirlenmiştir. Yöntem olarak Kónya nedensellik testi kullanılmıştır. Sonuçlar, Bankacılık Güç Endeksi ile Piyasa Değeri arasında iki yönlü bir ilişki olduğunu ve Karlılık oranlarından Bankacılık Güç Endeksi'ne doğru tek yönlü bir nedensellik ilişkisi olduğunu göstermektedir.

References

  • Abiad, A. (2003). Early warning systems: A survey and a regime-switching approach. IMF Working Paper, WP /03/32.
  • Allen, F. and Gale, D. (2004). Financial fragility, liquidity and asset prices. Journal of the European Economic Association, 2(6), 1015–1048.
  • Andrieş, M and Căpraru, B. (2012). Competition and efficiency in EU27 banking systems. Baltic Journal of Economics, 12(1), 41-60.
  • BRSA, (2020). Unconsolidated main indicators of the Turkish Banking Sector, Access link: file:///C:/Users/User/Downloads/HaberBulteni.pdf, Access Date: 10.12.2020.
  • Boone, J. (2008). A new way to measure competition. Economic Journal, 118, 1245-1261.
  • Bourkhis, K. and Nabi, M. S. (2013). Islamic and conventional banks' soundness during the 2007–2008 financial crisis. Review of Financial Economics, 22(2), 68-77.
  • Breusch, T. and Pagan, A. (1980). The LM test and its application to model specification in econometrics. Review of Economic Studies, 47, 239-254.
  • Coşkun, M. (2010). Money and capital markets: Institutions, Tools, Analysis. Detay Publishing.
  • Cuestas, J. C., Lucotte, Y. and Reigl, N. (2020). Banking sector concentration, competition and financial stability: The case of the Baltic Countries. Post-Communist Economies, 32(2), 215-249.
  • Demirgüç-Kunt, A., and Detragiache, E. (2011). Basel core principles and bank soundness: Does compliance matter?, Journal of Financial Stability, 7(4), 179-190.
  • Eyüboğlu, K. and Eyüboğlu, S. (2018). Investigation of the relationship between competition in the banking sector and financial soundness: Panel ARDL model for developing countries. Eskişehir Osmangazi University Journal of Economic and Administrative Sciences, 13(3), 219-234.
  • Gluzmann, P. and Guzman, M. (2017). Assessing the robustness of the relationship between financial reforms and banking crises. Journal of International Financial Markets, Institutions and Money, 49, 32-47.
  • Göksel, T. and Yılmaz, A. (2012). Relationship between banking regulations and financial stability: 1990-2010 the case of Turkey. Marmara University Journal of Economic and Administrative Sciences, 32(1), 69-94.
  • Jollife, I.T. (1986). Principle component analysis, Springer-Verlag, New York.
  • Kar, M., Nazlıoglu, Ş. and Agir, H. (2011). Financial development and economic growth nexus in the MENA countries: bootstrap panel granger causality analysis, Econ. Model. 28, 685-693.
  • Khallouli, W. and Nabi, M. S. (2013). Banking soundness and financial crises' predictability: a case study of Turkey. International Economics, 135, 62-78.
  • Kočišová, K. (2014). Banking stability index: A cross-country study. Faculty of Economics, Department of Banking and Investments. Košice, 4001, 197-208.
  • Koç, Y. D. and Karahan, F. (2017). Determinants of financial soundness in the Turkish banking sector. International Journal of Academic Value Studies, 3(15), 148-153.
  • Kónya, L. (2006). Exports and growth: Granger causality analysis on OECD countries with a panel data approach. Economic Modelling, 23(6), 978-992.
  • Kumar, M. A., Harsha, G. S., Anand, S., and Dhruva, N. R. (2012). Analyzing soundness in Indian banking: A CAMEL approach. Research Journal of Management Sciences, 1(3), 9-14.
  • Masruroh, A. and Siraj, H. (2016). The Go-Public Policy and Its Impact to The Indonesian Islamic Banking Soundness. Etikonomi, 15(1), 1-18.
  • Menyah, K., Nazlioglu, S. and Wolde-Rufael, Y. (2014). Financial development, trade openness and economic growth in African countries: new insights from a panel causality approach. Economic Modelling, 37, 386-394.
  • Mishkin, F. S. (2006). Money, banking, and financial markets. Nazım Engin (Translation Editor), İstanbul: Akademi Publishing.
  • Moyo, B. (2018). An analysis of competition, efficiency, and soundness in the South African banking sector. South African Journal of Economic and Management Sciences, 21(1), 1-14.
  • Naym, J. (2018). Competition and concentration in banking sector: Evidence from Bangladesh. 2018 Awards for Excellence in Student Research and Creative Activity – Documents. 4.
  • Park, J. (2012). Corruption, soundness of the banking sector, and economic growth: A cross-country study. Journal of International Money and Finance, 31(5), 907-929.
  • Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. IZA Discussion Paper 1240, Institute for the Study of Labor.
  • Pesaran, M.H. and Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142, 50-93. https://doi.org/10.1016/j.jeconom.2007.05.010
  • Rahim, R. A. (2017). Efficiency and competition in the Malaysian banking market: foreign versus domestic banks. Gadjah Mada International Journal of Business, 19(2), 193-221.
  • Schaeck, K. and Čihák, M. (2010). Competition, efficiency, and soundness in banking: An industrial organization perspective. European Banking Center Discussion Paper.
  • Selimler, H. and Karadağ, M. M. (2020). Evaluation of financial soundness indicators of deposit institutions by Entropy and Edas methods in Turkey and selected countries. Florya Chronicles of Political Economy, 6(1), 79-111.
  • Sere-Ejembi, A., Udom, I. S., Salihu, A., Atoi, N. V. and Yaaba, B. N. (2014). Developing banking system stability index for Nigeria. CBN Journal of Applied Statistics, 5(1), 49-77.
  • Steinbacher, M., Steinbacher, M., and Steinbacher, M. (2016). Robustness of banking networks to idiosyncratic and systemic shocks: A network-based approach. Journal of Economic Interaction and Coordination, 11(1), 95-117.
  • Taşkın, F. D. 2011. Factors affecting the performance of commercial banks in Turkey. Ege Academic Perspective, 11(2), 289-298.
  • Taşkın, F. D. (2015). Financial stability-competition relationship in Turkish banking sector. Finance Articles, 29(103), 175-204.
  • TBB. (2020). Activity report 2019-2020, Access Link: https://www.tbb.org.tr/ tr/hakkimizda /kurumsal / hakkinda /faaliyet-raporlari/17, Access Date: 01.07.2020.
  • TCMB. (2020). Financial stability, https://www.tcmb.gov.tr/wps/wcm/ connect/TR/ TCMB + TR/Main +Menu/Temel+Faaliyetler/Para+Politikasi/Finansal+Istikrar/ Access Date: 01.07.2020.
  • Tiryaki, G. and Yılmaz, A. (2012). Relationship Between Banking Regulations and Financial Stability: 1990-2010 Experience Turkey. Marmara University Journal of Economics and Administrative Sciences Faculty, 32(1), 69-94.
  • Varlık, N. and Varlık, S. (2016). The effects of risk perception on banking sector in Turkey: An assessment with banking system soundness ındex. Celal Bayar University Journal of Faculty of Economics and Administrative Sciences, 23(2), 545-563.
  • Yıldız, K., Çamurcu, Y. and Doğan, B. (2010). Principal Component analysis in data mining and comparative analysis of non-negative matrix factorization techniques, Academic Informatics’10 - XII. Academic Informatics Conference Papers, 207-213.
There are 40 citations in total.

Details

Primary Language English
Subjects Finance
Journal Section Research Papers
Authors

Ahmet Şit 0000-0002-0257-9023

Publication Date February 27, 2022
Submission Date November 15, 2021
Published in Issue Year 2022 Volume: 7 Issue: 17

Cite

APA Şit, A. (2022). The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey. İktisadi İdari Ve Siyasal Araştırmalar Dergisi, 7(17), 129-140. https://doi.org/10.25204/iktisad.1023782
AMA Şit A. The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey. JEBUPOR. February 2022;7(17):129-140. doi:10.25204/iktisad.1023782
Chicago Şit, Ahmet. “The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey”. İktisadi İdari Ve Siyasal Araştırmalar Dergisi 7, no. 17 (February 2022): 129-40. https://doi.org/10.25204/iktisad.1023782.
EndNote Şit A (February 1, 2022) The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey. İktisadi İdari ve Siyasal Araştırmalar Dergisi 7 17 129–140.
IEEE A. Şit, “The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey”, JEBUPOR, vol. 7, no. 17, pp. 129–140, 2022, doi: 10.25204/iktisad.1023782.
ISNAD Şit, Ahmet. “The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey”. İktisadi İdari ve Siyasal Araştırmalar Dergisi 7/17 (February 2022), 129-140. https://doi.org/10.25204/iktisad.1023782.
JAMA Şit A. The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey. JEBUPOR. 2022;7:129–140.
MLA Şit, Ahmet. “The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey”. İktisadi İdari Ve Siyasal Araştırmalar Dergisi, vol. 7, no. 17, 2022, pp. 129-40, doi:10.25204/iktisad.1023782.
Vancouver Şit A. The Effect of The Financial Soundness Index on The Financial Performance of Banks: An Application in Turkey. JEBUPOR. 2022;7(17):129-40.