AGGREGATE LIQUIDITY CREATION OF ISLAMIC BANKS IN TURKEY

Year 2021, , 197 - 212, 01.07.2021

Ozlem Akın S. Mehmet Ozsoy

https://doi.org/10.14780/muiibd.960332

Abstract

This paper provides a detailed analysis of aggregate liquidity created by Islamic (participation) banks in
Turkey. Using quarterly regulatory dataset for the period of 2010–2017 and applying Berger and Bouwman
framework to measure liquidity creation, we document that the liquidity created by Turkish Islamic
(participation) banks has tripled (in inflation adjusted terms) in our sample period. Furthermore, we find
that Islamic banks have created liquidity both on and off their balance sheets. Finally, we observe that
Turkish Islamic banks have been creating more liquidity with their liabilities than their assets. Despite the
continuous upward trend in aggregate liquidity created by Turkish Islamic banks, their loan-to-asset and
deposit-to-asset ratios have been declining in our sample period, which suggests that the observed trend
has been driven by extensive margin (i.e., bank sizes growing in real terms) rather than the intensive margin
(banks creating liquidity more effectively).

Keywords

Islamic Banks, Liquidity Creation, Turkey

References

• ABDELSALAM, O., El-Komi, M. (2016). Islamic Finance: Introduction and Implications for Future Research and Practice, Journal of Economic Behavior and Organization, 132: 1-3.
• ABEDIFAR, P., Hasan, I., Tarazi, A. (2016). Finance-Growth Nexus and Dual-Banking Systems: Relative Importance of Islamic Banks, Journal of Economic Behavior and Organization, 132: 198-215.
• ACHARYA, V. V., Richardson, M. (2009). Causes of The Financial Crisis, Critical Review, 21(2-3): 195-210.
• AKALA, İ. (2018). Comparing Financial Performances of Conventional and Participation Banks: Case of Turkey (2005–2015), International Journal of Inspiration and Resilience Economy, 2(1): 11-17.
• AKIN, O., Ozsoy, M. (2019). Global Trends in Liquidity Creation: The Role of the Off – Balance Sheet, New Trends in Banking and Finance: 77-94, Peter Lang, Berlin.
• AKIN, O., Ozsoy, M. (2020). Political Liquidity Creation: Electoral Cycles and State-Owned Banks, Working Paper.
• AKIN, O., Ozsoy, M. (2021). Bank Liquidity Creation in Turkey: Conventional vs. Islamic Banks, Working Paper.
• AKINCI, D. A., Matousek, R., Radić, N., Stewart, C. (2013). Monetary policy and The Banking Sector in Turkey, Journal of International Financial Markets, Institutions and Money, 27: 269-285.
• ALPER, K., Hulagu, T., Keles, G. (2012). An Empirical Study on Liquidity and Bank Lending, Central Bank of the Republic of Turkey Working Paper, 4.
• ALTAN, M., Parlakkaya, R. (2004). Bilanço Dışı İşlemlerin Banka Performansına Etkisi: Türk Bankacılık Sektörü Örneği, İktisat İşletme ve Finans, 19(219): 107-122.
• ALTUNBAS, Y., Gambacorta, L., Marques-Ibanez, D. (2009). Securitisation and the Bank Lending Channel, European Economic Review, 53(8): 996-1009.
• ANBAR, A., Alper, D. (2011). Bankaların Türev Ürün Kullanım Yoğunluğunu Etkileyen Faktörlerin Belirlenmesi, Muhasebe ve Finansman Dergisi, 50: 77-94.
• AYSAN, A. F., Disli, M., Ng, A., Ozturk, H. (2016). Is Small the New Big? Islamic Banking for SMEs in Turkey, Economic Modelling, 54: 187-194.
• AYSAN, A. F., Dolgun, M. H., Turhan, M. I. (2013). Assessment of the Participation Banks and Their Role in Financial Inclusion in Turkey, Emerging Markets Finance and Trade, 49(sup5): 99-111.
• BARRELL, R., Davis, E. P. (2008). The Evolution of the Financial Crisis of 2007—8, National Institute Economic Review, 206(1): 5-14.
• BECK, T., R. Dottling, T. Lambert, and M. van Dijk (2020). Liquidity Creation, Investment, and Growth, CEPR Discussion Papers no 14956, Centre for Economic Policy Research.
• BERGER, A. N., Bouwman, C. H. (2009). Bank Liquidity Creation, Review of Financial Studies, 22(9): 3779- 3837.
• BERGER, A. N., Bouwman, C. H. (2017). Bank Liquidity Creation, Monetary Policy, and Financial Crises, Journal of Financial Stability, 30, 139-155.
• BERGER, A. N., Boubakri, N., Guedhami, O., and Li, X. (2019). Liquidity Creation Performance and Financial Stability Consequences of Islamic Banking: Evidence from A Multinational Study, Journal of Financial Stability, 44: 100692.
• BITAR, M., Hassan, M. K., Walker, T. (2017). Political Systems and The Financial Soundness of Islamic banks, Journal of Financial Stability, 31: 18-44.
• DEEP, A., Schaefer, G. K. (2004). Are Banks Liquidity Transformers?, Working Paper, Harvard University.
• DEYOUNG, R., Huang, M. (2016). The External Effects of Bank Executive Pay: Liquidity Creation and Systemic Risk, Working Paper.
• ELNAHASS, M., Izzeldin, M., Steele, G. (2018). Capital and Earnings Management: Evidence from Alternative Banking Business Models, The International Journal of Accounting, 53(1): 20-32.
• EGRESI, I., Belge, R. (2017). Islamic Banking in Turkey: Population Perception and Development Challenges, Romanian Review on Political Geography/Revista Româna Geografie Politica, 19(1).
• EROL, C., Baklaci, H. F., Aydoğan, B., Tunç, G. (2014). Performance Comparison of Islamic (participation) Banks and Commercial Banks in Turkish Banking Sector, EuroMed Journal of Business, 9(2): 114-128.
• FIELD, L., Lowry, M., Mkrtchyan, A. (2013). Are Busy Boards Detrimental?, Journal of Financial Economics, 109(1): 63-82.
• FUNGACOVA, Z., Weill, L., Zhou, M. (2017). Bank Capital, Liquidity Creation and Deposit Insurance, Journal of Financial Services Research, 51(1): 97-123.
• GHEERAERT, L. (2014). Does Islamic Finance Spur Banking Sector Development?, Journal of Economic Behavior and Organization, 103: S4-S20.
• GHEERAERT, L., Weill, L. (2015). Does Islamic Banking Development Favor Macroeconomic Efficiency? Evidence on the Islamic Finance-Growth Nexus, Economic Modelling, 47: 32-39.
• HASSAN, M. K., Aliyu, S. (2018). A Contemporary Survey of Islamic Banking Literature, Journal of Financial Stability, 34: 12-43.
• HORVATH, R., Seidler, J., Weill, L. (2014). Bank Capital and Liquidity Creation: Granger-Causality Evidence, Journal of Financial Services Research, 45(3): 341-361.
• İKİZ, A. (2020). Islamic Banking in Turkey Facts, Figures and Prospects, Uluslararası Ekonomi ve Siyaset Bilimleri Akademik Araştırmalar Dergisi, 4(10): 74-81.
• KARAKAYA, A., Er, B. (2013). Noninterest (Nonprofit) Income and Financial Performance at Turkish Commercial and Participation Banks, International Business Research, 6(1): 106.
• OZSUCA, E. A., Akbostanci, E. (2012). An Empirical Analysis of the Bank Lending Channel in Turkey, Middle East Technical University ERC Working Papers in Economics, 12(05): 1-33.
• PANA, E., Park, J., Query, T. (2010). The Impact of Bank Mergers on Liquidity Creation, Journal of Risk Management in Financial Institutions, 4(1): 74-96.
• SAVASAN, F., Saraç, M., Gürdal, T. (2013). Exploring The Demand Side Issues in Participation Banking in Turkey: Questionnaire Survey on Current Issues and Proposed Solutions, Afro Eurasian Studies, 2(1- 2): 111-125.
• YANIKKAYA, H., Pabuçcu, Y. U. (2017). Causes and Solutions for The Stagnation of Islamic Banking in Turkey, ISRA International Journal of Islamic Finance, 9(1): 43-61.