Determination of Affecting Factors on Profitability of Banking Sector: An Examination upon the Turkish Banking Sector for the Period of 2006-2018

Year 2021, , 1 - 14, 30.04.2021

Mustafa Tevfik Kartal

https://doi.org/10.29249/selcuksbmyd.621539

Abstract

Although net profit of Turkish Banking Sector (TBS) has reached TL 54.1 billion in 2018, the profitability of TBS has been decreasing. Return on assets of TBS has decreased from 2.3% in 2006 to 1.4% in 2018. Similarly, return of equity of TBS has decreased from 18.8% in 2006 to 10.50% in 2018. This figures verify the decreasing trend in profitability. This trend presents risks for limiting of providing credits of banks. Therefore, the level of profitability of TBS has importance. Affecting factors on profitability should be detected first in order to keep profitability stable. In this context, Multivariate Adaptive Regression Splines (MARS) method, 11 explanatory variables, and quarterly data are used between 2006 and 2018. It is determined that net profits, credits, capital, nonperforming loans (NPL)/total credits, total assets, and USD/TL foreign exchange rate (FER) affect the profitability of banking sector in Turkey. Necessary measures should be taken by regulatory authorities to keep net profit stable and increase the profitability of the sector from the current level. Hence, banks could have the opportunity to provide much more credits for financing and supporting economic growth.

Keywords

Banking Sector, Profitability, Affecting Factors, MARS, Turkey

Bankacılık Sektöründe Karlılığı Etkileyen Faktörlerin Belirlenmesi: Türk Bankacılık Sektörünün 2006-2018 Dönemi Üzerine Bir İnceleme

Abstract

Although net
profit of Turkish Banking Sector (TBS) has reached TL 54.1 billion in 2018, the
profitability of TBS has been decreasing. Return on assets of TBS has decreased
from 2.3% in 2006 to 1.4% in 2018. Similarly, return of equity of TBS has
decreased from 18.8% in 2006 to 10.50% in 2018. This figures verify the decreasing
trend in profitability. This trend presents risks for limiting of providing
credits of banks. Therefore, the level of profitability of TBS has importance. Affecting
factors on profitability should be detected first in order to keep
profitability stable. In this context, Multivariate Adaptive Regression Splines
(MARS) method, 11 explanatory variables, and yearly data are used between 2006
and 2018. It is determined that net profits, credits, capital, nonperforming
loans (NPL)/total credits, total assets, and USD/TL foreign exchange rate (FER)
affect the profitability of banking sector in Turkey. Necessary measures should
be taken by regulatory authorities to keep net profit stable and increase the
profitability of the sector from the current level. Hence, banks could have the
opportunity to provide much more credits for financing and supporting economic
growth.

Keywords

Banking Sector, Profitability, Affecting Factors, MARS, Turkey

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