CROSS-BORDER LOAN LIABILITY, THE EXCHANGE RATE AND PROFITABILITY IN THE TURKISH BANKING SECTOR

Year 2018, , 51 - 68, 27.06.2018

Gökhan Övenç , Resul Aydemir

https://doi.org/10.14780/muiibd.434951

Abstract

We examine how the cross border banking loan liabilities (syndication and securitization loans) and

the exchange rate affect the Turkish banking industry profitability using a balanced panel data for the

period 2003Q1-2016Q3. We study with different subsamples and model specifications. Overall, we find

that the banking sector financial inflows are positively associated with bank profitability. Specifically, the

results show that the banking sector cross border inflows have significant and positive impact on return

on assets (ROA), return on equity (ROE) and on net interest margin (NIM). The long-term inflows

play a more important role than the short-term inflows in explaining profitability in all specifications

while short-term inflows have no any significant effect on these profitability indicators. Moreover, we

show that the exchange rate has significant and negative impact on ROA and ROE and has insignificant

effect on NIM. Our findings are more notable in private banks compared to the whole sample. Given

the fact that the existing studies examine the banking profitability through aggregate capital inflows

and maturity mismatch, this study will fill a meaningful gap in emerging market literature.

Keywords

Cross Border Banking Liability, Long-term Liability, Short-term Liability, The Exchange Rate, Bank Profitability, Net Interest Margin, Return on Asset

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