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DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS

Year 2021, Volume: 14 Issue: 1, 14 - 19, 31.12.2021
https://doi.org/10.17261/Pressacademia.2021.1478

Abstract

Purpose - The purpose of this study is to determine the effect of non-performing loans on profitability for public and private banks in the
Turkish banking system with the help of panel regression analysis.
Methodology - In this study, the effect of Non-Performing Loans/Total Loans and Loan/Deposit Ratio on the Return on Assets for the period
2010.Q1-2020.Q4 for 3 public, 8 private, and 16 foreign capital banks in the banking system was determined by panel regression analysis.
For the first-order stationary data, the Fixed Effects Model was found to be suitable as a result of the Hausman test, and the Greene
heteroscedasticity test and the Wooldridge autocorrelation test were analyzed to provide the assumptions.
Findings - As a result of the analysis, a statistically significant relationship was determined in the direction of decreasing the Non-Performing
Loans/Total Loans ratio by 23% in the Return on Assets. On the other hand, the Loan/Deposit Ratio is statistically significantly correlated with
the Return on Assets by 11.5%. In this study, it has been revealed that the profitability of a bank with increasing non-performing loans will
decrease.
Conclusion - Return on assets is an important indicator that shows how much profit the bank management can generate with current assets
and how effectively the assets are used. One of the important factors reducing profitability is the increase in non-performing loans. For this
reason, for banks to increase their market share, they must collect more effectively and make more accurate decisions while giving loans. It
is obvious that banks and regulatory and rule-making institutions must act in accordance with these results when determining their strategy.
Since it is important in terms of showing the solvency of borrowers in an economy, the risk level, and the asset quality of banks, there is a
need for estimations on the subject of non-performing loans analyzed with different methods in the literature.

References

  • Abdioğlu, N., & Aytekin, S. (2016). Takipteki kredi oranını etkileyen faktörlerin belirlenmesi: Mevduat bankaları üzerinde bir dinamik panel veri uygulanması. İşletme Araştırmaları Dergisi, 8(1), 538-555.
  • Akter, R., & Roy, J.K. (2017). Non-performing loan on profitability: Evidence from banking sector of Dhaka Stock Exchange. International Journal of Economics and Finance, 9(3), 126-132.
  • Anastasiou, D., Louri, H., & Tsionas, M.E. (2016). Determinants of non-performing loans: Evidence from Euro-area countries. Finance Research Letters, 18(1), 116-119.
  • Baltagi, B. H. (2005). Econometric Analysis of Panel Data. 3rd edition. West Sussex: John Wiley & Sons Ltd.
  • Bayar Y. & Sezgin H. F. (2017). Trade openness, inequality and poverty in Latin American countries. Ekonomika (Economics), 96(1), 47-57.
  • Christaria, F. & Kurnia, R. (2016). The impact of financial ratios, operational efficiency and non-performing loan towards commercial bank profitability. Accounting and Finance Review (AFR), 1(1), 43-50.
  • Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20(2), 249-272.
  • Cucinelli, D. (2015). The impact of non-performing loans on bank lending behavior: Evidence from the Italian banking sector. Eurasian Journal of Business and Economics, 8(16), 59-71.
  • Collaku, B. & Aliu, M. (2021). Impact of non-performing loans on bank’s profitability: Empirical evidence from commercial banks in Kosovo. Journal of Accounting, Finance and Auditing Studies, 7(3), 226-242.
  • Dimitrios, A., Helen, L., & Mike, T. (2016). Determinants of non-performing loans: evidence from Euro-Area countries. Finance Research Letters, 18 (1), 116-119.
  • Do, H., Ngo, T., & Phung, Q. (2020). The effect of non-performing loans on profitability of commercial banks: Case of Vietnam. Accounting, 6(3): 373-386.
  • Erdinc, D., & Abazi, E. (2014). The determinants of NPLs in emerging Europe. Journal of Economics and Political Economy, 1(2), 112-125.
  • Gungor, B. (2007). Türkiye’de faaliyet gösteren yerel ve yabancı bankaların kârlılık seviyelerini etkileyen faktörler: Panel veri analizi. İktisat İşletme ve Finans, 258(22), 40-63.
  • Hsiao, C. (2003). Analysis of Panel Data. (2nd ed., Econometric Society Monographs). Cambridge: Cambridge University Press.
  • Hu, J.-L., Li, Y., & Chiu, Y-H. (2004). Ownership and non performing loans: Evidence from Taiwan’s banks. The Devaloping Economies, 42(3), 405-420.
  • Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74
  • Kingu, P. S., Macha, S., & Gwahula, R. (2018). Impact of non-performing loans on bank’s profitability: Empirical evidence from commercial banks in Tanzania. International Journal of Scientific Research and Management, 6(1), 71-78.
  • Klein, N. (2013). Non performing loans cesee: Determinants and impact on macroeconomic performance. IMF Working Paper, 13(72), 1-27.
  • Maddala, G. S. & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, Special Issue, 61(1), 631-652.
  • Laryea, E., Ntow-Gyamfi, M., & Alu, A. A. (2016). Nonperforming loans and bank profitability: Evidence from an emerging market. African Journal of Economic and Management Studies, 7(4), 462-481.
  • Lin, J. C. & Sum, V. (2012). bank ownership and performance in Taiwan: Do politics matter? Journal of Finance and Accountancy, 10(1), 12- 30.
  • Mileris, R. (2012). Macroeconomic determinants of loan portfolio credit risk in banks. Ekonomika-Engineering Economics, 23(5), 496–504.
  • Ozel, H. A., Sezgin, F. H. & Topkaya, O. (2013). Investigation, of economic growth and unemployment relationship for G7 countries using panel regression analysis. International Journal of Business and Social Science, 4(6), 162-170.
  • Panta, B. (2018). Non-performing loans and bank profitability: Study of joint venture banks in Nepal. International Journal of Sciences: Basic and Applied Research (IJSBAR), 42(1), 151-156.
  • Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. CESifo Working Papers, No. 1229, 1-40.
  • Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22(2), 265-312.
  • Pesaran, M. H. & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142 (1), 50-93.
  • Pesaran, M. H., Ullah A., & Yamagata T. (2008). A bias-adjusted LM test of error cross-section independence. Econometrics Journal, 11(1), 105-127.
  • Psaila, A., Spiteri, J., Grima, S. (2019). The impact of non-performing loans on the profitability of listed Euro-Mediterranean commercial banks. International Journal of Economics and Business Administration, 6(4), 166-196.
  • Rachman, R.A., Kadarusman, Y.B., Anggriono, K. and Setiadi, R. (2018). Bank- specific factors affecting non-performing loans in developing countries: Case study of Indonesia. The Journal of Asian Finance, Economics and Business (JAFEB), 5(2), 35-42.
  • Radivojevic, N., & Jovovic, J. (2017). Examining of determinants of non-performing loan. Prague Economic Papers, 26(3), 300–316. Skarica, B. (2013). Determinants of non-performing loans in central and eastern European countries. Financial Theory and Practice, 38(1), 37- 59.
  • Taskin, F. D. (2011). Türkiye’de ticari bankaların perfonmasını etkileyen faktörler. Ege Akademik Bakış, 11(2), 289-298.
  • Wooldridge, J. M. (2010). Econometric Analysis of Cross Section and Panel Data. 2nd edition. Cambridge, Massachusetts, London, England: The MIT Press.
  • Vatansever, M. & Hepsen, A. (2013). Determining impacts on non-performing loan ratio in Turkey. Journal of Finance and Investment Analysis, 2(4), 119-129.
  • Yagcilar, G. G., & Demir, S. (2015). Türk bankacılık sektöründe takipteki kredi oranları üzerinde etkili olan faktörlerin belirlenmesi. Uluslararası Alanya İşletme Fakültesi Dergisi, 7(1), 221-229.
  • Zhang, D., Cai, J., Dickinson, D. & Kutan, A. (2016). Non-performing loans, moral hazard and regulation of the Chinese commercial banking system. Journal of Banking & Finance, 63(1), 48-60
Year 2021, Volume: 14 Issue: 1, 14 - 19, 31.12.2021
https://doi.org/10.17261/Pressacademia.2021.1478

Abstract

References

  • Abdioğlu, N., & Aytekin, S. (2016). Takipteki kredi oranını etkileyen faktörlerin belirlenmesi: Mevduat bankaları üzerinde bir dinamik panel veri uygulanması. İşletme Araştırmaları Dergisi, 8(1), 538-555.
  • Akter, R., & Roy, J.K. (2017). Non-performing loan on profitability: Evidence from banking sector of Dhaka Stock Exchange. International Journal of Economics and Finance, 9(3), 126-132.
  • Anastasiou, D., Louri, H., & Tsionas, M.E. (2016). Determinants of non-performing loans: Evidence from Euro-area countries. Finance Research Letters, 18(1), 116-119.
  • Baltagi, B. H. (2005). Econometric Analysis of Panel Data. 3rd edition. West Sussex: John Wiley & Sons Ltd.
  • Bayar Y. & Sezgin H. F. (2017). Trade openness, inequality and poverty in Latin American countries. Ekonomika (Economics), 96(1), 47-57.
  • Christaria, F. & Kurnia, R. (2016). The impact of financial ratios, operational efficiency and non-performing loan towards commercial bank profitability. Accounting and Finance Review (AFR), 1(1), 43-50.
  • Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20(2), 249-272.
  • Cucinelli, D. (2015). The impact of non-performing loans on bank lending behavior: Evidence from the Italian banking sector. Eurasian Journal of Business and Economics, 8(16), 59-71.
  • Collaku, B. & Aliu, M. (2021). Impact of non-performing loans on bank’s profitability: Empirical evidence from commercial banks in Kosovo. Journal of Accounting, Finance and Auditing Studies, 7(3), 226-242.
  • Dimitrios, A., Helen, L., & Mike, T. (2016). Determinants of non-performing loans: evidence from Euro-Area countries. Finance Research Letters, 18 (1), 116-119.
  • Do, H., Ngo, T., & Phung, Q. (2020). The effect of non-performing loans on profitability of commercial banks: Case of Vietnam. Accounting, 6(3): 373-386.
  • Erdinc, D., & Abazi, E. (2014). The determinants of NPLs in emerging Europe. Journal of Economics and Political Economy, 1(2), 112-125.
  • Gungor, B. (2007). Türkiye’de faaliyet gösteren yerel ve yabancı bankaların kârlılık seviyelerini etkileyen faktörler: Panel veri analizi. İktisat İşletme ve Finans, 258(22), 40-63.
  • Hsiao, C. (2003). Analysis of Panel Data. (2nd ed., Econometric Society Monographs). Cambridge: Cambridge University Press.
  • Hu, J.-L., Li, Y., & Chiu, Y-H. (2004). Ownership and non performing loans: Evidence from Taiwan’s banks. The Devaloping Economies, 42(3), 405-420.
  • Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74
  • Kingu, P. S., Macha, S., & Gwahula, R. (2018). Impact of non-performing loans on bank’s profitability: Empirical evidence from commercial banks in Tanzania. International Journal of Scientific Research and Management, 6(1), 71-78.
  • Klein, N. (2013). Non performing loans cesee: Determinants and impact on macroeconomic performance. IMF Working Paper, 13(72), 1-27.
  • Maddala, G. S. & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, Special Issue, 61(1), 631-652.
  • Laryea, E., Ntow-Gyamfi, M., & Alu, A. A. (2016). Nonperforming loans and bank profitability: Evidence from an emerging market. African Journal of Economic and Management Studies, 7(4), 462-481.
  • Lin, J. C. & Sum, V. (2012). bank ownership and performance in Taiwan: Do politics matter? Journal of Finance and Accountancy, 10(1), 12- 30.
  • Mileris, R. (2012). Macroeconomic determinants of loan portfolio credit risk in banks. Ekonomika-Engineering Economics, 23(5), 496–504.
  • Ozel, H. A., Sezgin, F. H. & Topkaya, O. (2013). Investigation, of economic growth and unemployment relationship for G7 countries using panel regression analysis. International Journal of Business and Social Science, 4(6), 162-170.
  • Panta, B. (2018). Non-performing loans and bank profitability: Study of joint venture banks in Nepal. International Journal of Sciences: Basic and Applied Research (IJSBAR), 42(1), 151-156.
  • Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. CESifo Working Papers, No. 1229, 1-40.
  • Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22(2), 265-312.
  • Pesaran, M. H. & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142 (1), 50-93.
  • Pesaran, M. H., Ullah A., & Yamagata T. (2008). A bias-adjusted LM test of error cross-section independence. Econometrics Journal, 11(1), 105-127.
  • Psaila, A., Spiteri, J., Grima, S. (2019). The impact of non-performing loans on the profitability of listed Euro-Mediterranean commercial banks. International Journal of Economics and Business Administration, 6(4), 166-196.
  • Rachman, R.A., Kadarusman, Y.B., Anggriono, K. and Setiadi, R. (2018). Bank- specific factors affecting non-performing loans in developing countries: Case study of Indonesia. The Journal of Asian Finance, Economics and Business (JAFEB), 5(2), 35-42.
  • Radivojevic, N., & Jovovic, J. (2017). Examining of determinants of non-performing loan. Prague Economic Papers, 26(3), 300–316. Skarica, B. (2013). Determinants of non-performing loans in central and eastern European countries. Financial Theory and Practice, 38(1), 37- 59.
  • Taskin, F. D. (2011). Türkiye’de ticari bankaların perfonmasını etkileyen faktörler. Ege Akademik Bakış, 11(2), 289-298.
  • Wooldridge, J. M. (2010). Econometric Analysis of Cross Section and Panel Data. 2nd edition. Cambridge, Massachusetts, London, England: The MIT Press.
  • Vatansever, M. & Hepsen, A. (2013). Determining impacts on non-performing loan ratio in Turkey. Journal of Finance and Investment Analysis, 2(4), 119-129.
  • Yagcilar, G. G., & Demir, S. (2015). Türk bankacılık sektöründe takipteki kredi oranları üzerinde etkili olan faktörlerin belirlenmesi. Uluslararası Alanya İşletme Fakültesi Dergisi, 7(1), 221-229.
  • Zhang, D., Cai, J., Dickinson, D. & Kutan, A. (2016). Non-performing loans, moral hazard and regulation of the Chinese commercial banking system. Journal of Banking & Finance, 63(1), 48-60
There are 36 citations in total.

Details

Primary Language English
Subjects Finance, Business Administration
Journal Section Articles
Authors

Aysegul Berrak Koten 0000-0002-5680-9920

Publication Date December 31, 2021
Published in Issue Year 2021 Volume: 14 Issue: 1

Cite

APA Koten, A. B. (2021). DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS. PressAcademia Procedia, 14(1), 14-19. https://doi.org/10.17261/Pressacademia.2021.1478
AMA Koten AB. DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS. PAP. December 2021;14(1):14-19. doi:10.17261/Pressacademia.2021.1478
Chicago Koten, Aysegul Berrak. “DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS”. PressAcademia Procedia 14, no. 1 (December 2021): 14-19. https://doi.org/10.17261/Pressacademia.2021.1478.
EndNote Koten AB (December 1, 2021) DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS. PressAcademia Procedia 14 1 14–19.
IEEE A. B. Koten, “DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS”, PAP, vol. 14, no. 1, pp. 14–19, 2021, doi: 10.17261/Pressacademia.2021.1478.
ISNAD Koten, Aysegul Berrak. “DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS”. PressAcademia Procedia 14/1 (December 2021), 14-19. https://doi.org/10.17261/Pressacademia.2021.1478.
JAMA Koten AB. DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS. PAP. 2021;14:14–19.
MLA Koten, Aysegul Berrak. “DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS”. PressAcademia Procedia, vol. 14, no. 1, 2021, pp. 14-19, doi:10.17261/Pressacademia.2021.1478.
Vancouver Koten AB. DETERMINATION OF THE RELATIONSHIP BETWEEN NON-PERFORMING LOANS AND PROFITABILITY IN THE TURKISH BANKING SYSTEM WITH PANEL REGRESSION ANALYSIS. PAP. 2021;14(1):14-9.

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