INTERNAL DETERMINANTS OF PROFITABILITY OF STATE, PRIVATE AND FOREIGN OWNED COMMERCIAL BANKS OPERATING IN TURKEY

Abstract

Purpose - The purpose of this study is to identify the internal determinants affecting profitability of 26 commercial banks (i.e. state, private, and foreign banks) in Turkey.

Methodology- Fixed and random effects panel data estimation techniques are employed to evaluate the impact of various internal determinants on bank profitability in Turkish banks having different ownership structures. The estimates are based on quarterly data over the period 2009Q1-2016Q3.

Findings- Estimation results generally indicate that bank profitability (i.e. return on assets) is positively affected by variables such as income diversification, deposit level, bank scale, and bank stability, but negatively influenced by variables representing credit risk, lending level, operating expenses, and capital adequacy.

Conclusion- Bank profitability is affected by all bank-specific variables. However, when the sample is divided into three groups according to the ownership structure, the findings show that the effects of the bank-specific variables differ according to the bank ownership structure.

Keywords

• Turkish banking sector,commercial banks,internal determinants of profitability,panel data analysis,Turkey

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