Research Article
BibTex RIS Cite

Sectoral Concentration in Loans and Credit Risk: An Examination by Company Accounts in Turkey

Year 2024, Volume: 11 Issue: 4, 1392 - 1410, 31.12.2024

Arzu Şahin , Elif Acar

https://doi.org/10.30798/makuiibf.1464022

Abstract

This study examines the impact of sectoral concentration on credit default risk, drawing from economic theory and portfolio management principles, utilizing the Turkish aggregated sector-level data and banking data from 2009 to 2022. The study employs a panel data analysis framework to investigate the relationship between sectoral diversification in loans and credit risk, controlling for sector-specific variables. Unlike previous studies primarily reliant on banking system data, this research broadens the scope by incorporating the real sector credit usage data for the measurement of concentration. Additionally, instead of the commonly used Herfindahl-Hirschman Index, the study employs the Sector Concentration Index as a measure of concentration, allowing for a comparison of sector distribution with an ideal market sector distribution. The analysis considers not only the widely used indicator of credit risk, non-performing loans ratio in the banking system but also bad debt ratios in the real sector, thereby enhancing the understanding of credit risk dynamics. The analysis results, which show a significant positive relationship between sectoral concentration indices and non-performing ratios employed, reveal that sectoral credit concentration has an increasing effect on the credit risk level and offers insights into the optimal diversification strategies for mitigating credit risk in the banking sector.

Keywords

Sectoral Loan Concentration Sectoral Loan Diversification Credit Default Risk Turkish Company Accounts Turkish Banking Sector Panel Data Analysis

References

  • loan portfolios. The Journal of Business, 79(3), 1355-1412. https://www.jstor.org/stable/10.1086/50067
  • Anastasi, A., Bebczuk, R., Elosegui, P., & Sangiácomo, M. (2009). Productive, geographical and clientele diversification of banks, and its effect on the loan portfolio performance in Argentina. Ensayos Económicos, 1(56), 7–39.
  • Baltagi, B. H. (2005). Econometric analysis of panel data (3rd ed.). John Wiley & Sons.
  • Bebczuk, R., & Galindo, A. (2008). Financial crisis and sectoral diversification of Argentine banks, 1999–2004. Applied Financial Economics, 18(3), 199-211.
  • Beck, T., & De Jonghe, O. (2013). Lending concentration, bank performance and systemic risk: Exploring cross- country variation (World Bank Policy Research Working Paper N0. WPS660). Development Economics Vice Presidency. The World Bank. https://ssrn.com/abstract=2326780
  • Böve, R., Düllmann, K., & Pfingsten, A. (2010). Do specialization benefits outweigh concentration risks in credit portfolios of German banks? (Discussion Paper Series 2, Banking and Financial Studies No. 10/2010,10). Deutsche Bundesbank. http://dx.doi.org/10.2139/ssrn.2794048
  • Banking Regulation and Supervision Agency. (2016). Guideline on the management of concentration risk (Best Practice Guideline N: 2827). [Fact sheet]. https://www.bddk.org.tr/Mevzuat/DokumanGetir/1010
  • Banking Regulation and Supervision Agency. (2023, November). Monthly banking sector data (basic analysis). [Data set]. https://www.bddk.org.tr/BultenAylik/en
  • Central Bank of the Republic of Turkey. (2023, November). Company accounts statistics. [Data set]. https://www3.tcmb.gov.tr/sektor/#/en
  • Chen, Y., Wei, X., Zhang, L., & Shi, Y. (2013). Sectoral diversification and the banks’ return and risk: Evidence from Chinese listed commercial banks. Procedia Computer Science, (18), 1737-1746. https://doi.org/10.1016/j.procs.2013.05.342
  • Conroy, M. E. (1974). Alternative strategies for regional industrial diversification. Journal of Regional Science, 14(1), 31–46
  • Demirbaş Özbekler, M. (2019). Kredi portföyünde çeşitlendirme: Türk bankacılık sektörü üzerine bir analiz. [Türkiye Cumhuriyet Merkez Bankası Uzmanlık Yeterlilik Tezi]. Bankacılık ve Finansal Kuruluşlar Genel Müdürlüğü, Türkiye Cumhuriyet Merkez Bankası. https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Yayinlar/Calismalar/Uzmanlik+Tezler i/
  • Diamond, D. W. (1984). Financial intermediation and delegated monitoring. The review of economic studies, 51(3), 393 - 414.
  • Gascón, F., & González V. M. (2000). Diversification size and risk at Spanish Banks. (Working Paper EFMA Athens, June 2000). http://dx.doi.org/10.2139/ssrn.233656
  • Goetz, M. R. (2012). Bank diversification, market structure and bank risk taking: Theory and evidence from US commercial banks. (Working Paper No. QAU 12-2). Quantitative Analysis Unit, Federal Reserve Bank of Boston. http://dx.doi.org/10.2139/ssrn.2651161
  • Gönenç, H., & Kılıçhan, B. (2004). Kredi portföyü çeşitlendirmesinin banka performansı üzerindeki etkileri. Türkiye Bankalar Birliği Bankacılar Dergisi, 49, 53-67. https://www.tbb.org.tr/Dosyalar/Dergiler/Dokumanlar/49.pdf
  • Hazar, A., Sunal, O., Babuşçu, Ş., & Sezgin Alp, Ö. (2017). Türk bankacılık sektöründe piyasa yoğunlaşması: 2001 krizi öncesi ve sonrasının karşılaştırılması. Maliye ve Finans Yazıları, 1(107), 42-68. https://doi.org/10.33203/mfy.307173
  • Herfindahl, O.C. (1959). Copper costs and prices: 1870 – 1957. John Hopkins Press.
  • Hirschman, A.O. (1964). The paternity of an index. American Economic Review. 54, 761-762.
  • Kacperczyk, M.T., Sialm, C., & Zheng, L. (2005). On the industry concentration of actively managed equity mutual funds. The Journal of Finance, 60(4), 1983-2011. http://dx.doi.org/10.1111/j.1540-6261.2005.00785.xR
  • Kluge, J. (2018). Sectoral diversification as insurance against economic instability. Journal of Regional Scence., 58, 204–223. https://doi.org/10.1111/jors.12349
  • Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91
  • Morgan, D.P., & Samolyk, K. (2003, March 20-21). Geographic diversification in banking and its implications for bank portfolio choice and performance. Bank for International Settlements, Banking and Financial Stability: A Workshop on Applied Banking Research, Rome, Italy. https://www.bis.org/bcbs/events/wkshop0303/index.htm
  • Sarı, S. (2019). Türk bankacılık sektörü kredilerinde sektörel yoğunlaşma ve kredi riski. Iğdır Üniversitesi Sosyal Bilimler Dergisi (Supplement, December 2019), 43-68.
  • Sarı, S. (2020). The relationship of sectoral credit concentration and return in banking credits. Euroasia Journal of Social Sciences & Humanities, 7(13), 1–19. https://www.euroasiajournal.com/index.php/eurssh/article/view/17
  • Sarı, S., & Konukman, A. (2021). Türk bankacılık sektöründe sektörel kredi yoğunlaşması ve risk-karlılık ilişkisi. Anadolu Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 22(1), 1-28. https://dergipark.org.tr/tr/pub/anadoluibfd/issue/61029/862288
  • Sarı, S. (2022). Banka kredilerinde coğrafi yoğunlaşma ve kredi riski ilişkisi. Akdeniz İİBF Dergisi, 22 (2), 36-45. https://doi.org/10.25294/auiibfd.1141625
  • Sarı, S., & Konukman, A. (2023). Türkiye’de sektörel kredi yoğunlaşması ve büyüme ilişkisinin VAR analizi ile incelenmesi. Politik Ekonomik Kuram, 7(1), 1-15. https://doi.org/10.30586/pek.1225880
  • Tabak, B. M., Fazio, D. M., & Cajueiro, D. O. (2011). The effects of loan portfolio concentration on Brazilian banks’ return and risk. Journal of Banking and Finance, 35(11), 3065–3076. https://doi.org/10.1016/j.jbankfin.2011.04.006
  • Tatoğlu, F. Y. (2012). İleri panel veri analizi (1. ed.). Beta Basım A.Ş.
  • Turkish Statistical Institute. (2023, November). Gross domestic product at current prices by kind of economic activity A21 level value, share, percentage change, at current prices, 1998-2022. [Data set]. https://data.tuik.gov.tr/Search/Search?text=A21
  • Tunay, K. B. (2015). Kredi portföylerinde sektörel yoğunlaşma ve risk ilişkisi: Türk ticari bankacılık sektörü üzerine bir analiz. BDDK Bankacılık ve Finansal Piyasalar Dergisi, 9(1), 127-147. https://dergipark.org.tr/tr/pub/bddkdergisi/issue/57343/812557
  • Türkmen, Y.S., & Yiğit, İ. (2012). Diversification in banking and its effect on banks’ performance: Evidence from Turkey. American International Journal of Contemporary Research, 2(12), 111-119.
  • Winton, A. (1999). Don't put all your eggs in one basket? Diversification and specialization in lending. http://dx.doi.org/10.2139/ssrn.173615
  • Yalçın, D., & Tunay, K.B. (2020). Kredi portföylerinde sektörel yoğunlaşma ve risk ilişkisi: Türkiye örneği. Finansal Araştırmalar ve Çalışmalar Dergisi, 12(22), 344-358. https://doi.org/10.14784/marufacd.688328

Sectoral Concentration in Loans and Credit Risk: An Examination by Company Accounts in Turkey

Year 2024, Volume: 11 Issue: 4, 1392 - 1410, 31.12.2024

Arzu Şahin , Elif Acar

https://doi.org/10.30798/makuiibf.1464022

Abstract

This study examines the impact of sectoral concentration on credit default risk, drawing from economic theory and portfolio management principles, utilizing the Turkish aggregated sector-level data and banking data from 2009 to 2022. The study employs a panel data analysis framework to investigate the relationship between sectoral diversification in loans and credit risk, controlling for sector-specific variables. Unlike previous studies primarily reliant on banking system data, this research broadens the scope by incorporating the real sector credit usage data for the measurement of concentration. Additionally, instead of the commonly used Herfindahl-Hirschman Index, the study employs the Sector Concentration Index as a measure of concentration, allowing for a comparison of sector distribution with an ideal market sector distribution. The analysis considers not only the widely used indicator of credit risk, non-performing loans ratio in the banking system but also bad debt ratios in the real sector, thereby enhancing the understanding of credit risk dynamics. The analysis results, which show a significant positive relationship between sectoral concentration indices and non-performing ratios employed, reveal that sectoral credit concentration has an increasing effect on the credit risk level and offers insights into the optimal diversification strategies for mitigating credit risk in the banking sector.

Keywords

Sectoral Loan Concentration Sectoral Loan Diversification Credit Default Risk Turkish Company Accounts Turkish Banking Sector Panel Data Analysis

Ethical Statement

The study does not necessitate Ethics Committee permission. The study has been crafted in adherence to the principles of research and publication ethics. The authors declare that there exists no financial conflict of interest involving any institution, organization, or individual(s) associated with the article. Furthermore, there are no conflicts of interest among the authors themselves. The authors contributed equally to the entire process of the research.

References

  • loan portfolios. The Journal of Business, 79(3), 1355-1412. https://www.jstor.org/stable/10.1086/50067
  • Anastasi, A., Bebczuk, R., Elosegui, P., & Sangiácomo, M. (2009). Productive, geographical and clientele diversification of banks, and its effect on the loan portfolio performance in Argentina. Ensayos Económicos, 1(56), 7–39.
  • Baltagi, B. H. (2005). Econometric analysis of panel data (3rd ed.). John Wiley & Sons.
  • Bebczuk, R., & Galindo, A. (2008). Financial crisis and sectoral diversification of Argentine banks, 1999–2004. Applied Financial Economics, 18(3), 199-211.
  • Beck, T., & De Jonghe, O. (2013). Lending concentration, bank performance and systemic risk: Exploring cross- country variation (World Bank Policy Research Working Paper N0. WPS660). Development Economics Vice Presidency. The World Bank. https://ssrn.com/abstract=2326780
  • Böve, R., Düllmann, K., & Pfingsten, A. (2010). Do specialization benefits outweigh concentration risks in credit portfolios of German banks? (Discussion Paper Series 2, Banking and Financial Studies No. 10/2010,10). Deutsche Bundesbank. http://dx.doi.org/10.2139/ssrn.2794048
  • Banking Regulation and Supervision Agency. (2016). Guideline on the management of concentration risk (Best Practice Guideline N: 2827). [Fact sheet]. https://www.bddk.org.tr/Mevzuat/DokumanGetir/1010
  • Banking Regulation and Supervision Agency. (2023, November). Monthly banking sector data (basic analysis). [Data set]. https://www.bddk.org.tr/BultenAylik/en
  • Central Bank of the Republic of Turkey. (2023, November). Company accounts statistics. [Data set]. https://www3.tcmb.gov.tr/sektor/#/en
  • Chen, Y., Wei, X., Zhang, L., & Shi, Y. (2013). Sectoral diversification and the banks’ return and risk: Evidence from Chinese listed commercial banks. Procedia Computer Science, (18), 1737-1746. https://doi.org/10.1016/j.procs.2013.05.342
  • Conroy, M. E. (1974). Alternative strategies for regional industrial diversification. Journal of Regional Science, 14(1), 31–46
  • Demirbaş Özbekler, M. (2019). Kredi portföyünde çeşitlendirme: Türk bankacılık sektörü üzerine bir analiz. [Türkiye Cumhuriyet Merkez Bankası Uzmanlık Yeterlilik Tezi]. Bankacılık ve Finansal Kuruluşlar Genel Müdürlüğü, Türkiye Cumhuriyet Merkez Bankası. https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Yayinlar/Calismalar/Uzmanlik+Tezler i/
  • Diamond, D. W. (1984). Financial intermediation and delegated monitoring. The review of economic studies, 51(3), 393 - 414.
  • Gascón, F., & González V. M. (2000). Diversification size and risk at Spanish Banks. (Working Paper EFMA Athens, June 2000). http://dx.doi.org/10.2139/ssrn.233656
  • Goetz, M. R. (2012). Bank diversification, market structure and bank risk taking: Theory and evidence from US commercial banks. (Working Paper No. QAU 12-2). Quantitative Analysis Unit, Federal Reserve Bank of Boston. http://dx.doi.org/10.2139/ssrn.2651161
  • Gönenç, H., & Kılıçhan, B. (2004). Kredi portföyü çeşitlendirmesinin banka performansı üzerindeki etkileri. Türkiye Bankalar Birliği Bankacılar Dergisi, 49, 53-67. https://www.tbb.org.tr/Dosyalar/Dergiler/Dokumanlar/49.pdf
  • Hazar, A., Sunal, O., Babuşçu, Ş., & Sezgin Alp, Ö. (2017). Türk bankacılık sektöründe piyasa yoğunlaşması: 2001 krizi öncesi ve sonrasının karşılaştırılması. Maliye ve Finans Yazıları, 1(107), 42-68. https://doi.org/10.33203/mfy.307173
  • Herfindahl, O.C. (1959). Copper costs and prices: 1870 – 1957. John Hopkins Press.
  • Hirschman, A.O. (1964). The paternity of an index. American Economic Review. 54, 761-762.
  • Kacperczyk, M.T., Sialm, C., & Zheng, L. (2005). On the industry concentration of actively managed equity mutual funds. The Journal of Finance, 60(4), 1983-2011. http://dx.doi.org/10.1111/j.1540-6261.2005.00785.xR
  • Kluge, J. (2018). Sectoral diversification as insurance against economic instability. Journal of Regional Scence., 58, 204–223. https://doi.org/10.1111/jors.12349
  • Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91
  • Morgan, D.P., & Samolyk, K. (2003, March 20-21). Geographic diversification in banking and its implications for bank portfolio choice and performance. Bank for International Settlements, Banking and Financial Stability: A Workshop on Applied Banking Research, Rome, Italy. https://www.bis.org/bcbs/events/wkshop0303/index.htm
  • Sarı, S. (2019). Türk bankacılık sektörü kredilerinde sektörel yoğunlaşma ve kredi riski. Iğdır Üniversitesi Sosyal Bilimler Dergisi (Supplement, December 2019), 43-68.
  • Sarı, S. (2020). The relationship of sectoral credit concentration and return in banking credits. Euroasia Journal of Social Sciences & Humanities, 7(13), 1–19. https://www.euroasiajournal.com/index.php/eurssh/article/view/17
  • Sarı, S., & Konukman, A. (2021). Türk bankacılık sektöründe sektörel kredi yoğunlaşması ve risk-karlılık ilişkisi. Anadolu Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 22(1), 1-28. https://dergipark.org.tr/tr/pub/anadoluibfd/issue/61029/862288
  • Sarı, S. (2022). Banka kredilerinde coğrafi yoğunlaşma ve kredi riski ilişkisi. Akdeniz İİBF Dergisi, 22 (2), 36-45. https://doi.org/10.25294/auiibfd.1141625
  • Sarı, S., & Konukman, A. (2023). Türkiye’de sektörel kredi yoğunlaşması ve büyüme ilişkisinin VAR analizi ile incelenmesi. Politik Ekonomik Kuram, 7(1), 1-15. https://doi.org/10.30586/pek.1225880
  • Tabak, B. M., Fazio, D. M., & Cajueiro, D. O. (2011). The effects of loan portfolio concentration on Brazilian banks’ return and risk. Journal of Banking and Finance, 35(11), 3065–3076. https://doi.org/10.1016/j.jbankfin.2011.04.006
  • Tatoğlu, F. Y. (2012). İleri panel veri analizi (1. ed.). Beta Basım A.Ş.
  • Turkish Statistical Institute. (2023, November). Gross domestic product at current prices by kind of economic activity A21 level value, share, percentage change, at current prices, 1998-2022. [Data set]. https://data.tuik.gov.tr/Search/Search?text=A21
  • Tunay, K. B. (2015). Kredi portföylerinde sektörel yoğunlaşma ve risk ilişkisi: Türk ticari bankacılık sektörü üzerine bir analiz. BDDK Bankacılık ve Finansal Piyasalar Dergisi, 9(1), 127-147. https://dergipark.org.tr/tr/pub/bddkdergisi/issue/57343/812557
  • Türkmen, Y.S., & Yiğit, İ. (2012). Diversification in banking and its effect on banks’ performance: Evidence from Turkey. American International Journal of Contemporary Research, 2(12), 111-119.
  • Winton, A. (1999). Don't put all your eggs in one basket? Diversification and specialization in lending. http://dx.doi.org/10.2139/ssrn.173615
  • Yalçın, D., & Tunay, K.B. (2020). Kredi portföylerinde sektörel yoğunlaşma ve risk ilişkisi: Türkiye örneği. Finansal Araştırmalar ve Çalışmalar Dergisi, 12(22), 344-358. https://doi.org/10.14784/marufacd.688328
There are 35 citations in total.

Details

Primary Language English
Subjects Risk management in Banking, Finance, Financial Markets and Institutions, Financial Risk Management
Journal Section Research Articles
Authors

Arzu Şahin 0000-0002-9944-1791

Elif Acar 0000-0003-0107-5517

Publication Date December 31, 2024
Submission Date April 3, 2024
Acceptance Date October 18, 2024
Published in Issue Year 2024 Volume: 11 Issue: 4

Cite

APA Şahin, A., & Acar, E. (2024). Sectoral Concentration in Loans and Credit Risk: An Examination by Company Accounts in Turkey. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty, 11(4), 1392-1410. https://doi.org/10.30798/makuiibf.1464022
 Download Cover Image

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The author(s) bear full responsibility for the ideas and arguments presented in their articles. All scientific and legal accountability concerning the language, style, adherence to scientific ethics, and content of the published work rests solely with the author(s). Neither the journal nor the institution(s) affiliated with the author(s) assume any liability in this regard.