Assessment of Bad Loans in Turkey: What Role do Financial Conditions have?

Yıl 2018, Cilt: 10 Sayı: 18, 137 - 152, 01.01.2018

Vuslat Us

https://doi.org/10.14784/marufacd.460673

Öz

This paper analyzes non-performing loans in the Turkish banking sector with a special focus on the role
of financial conditions after the global crisis. In doing so, the empirical framework shows that the determinants
of non-performing loans have changed after the crisis. In particular, non-performing loans are mostly
shaped by bank-specific factors before the crisis, whereas these variables have a reduced effect after the
global crisis. This finding is attributed to global developments in this period, which certainly had effects on
both global and domestic financial conditions. The inclusion of financial conditions index as an additional
regressor in the post-crisis episode also confirms this finding by yielding a statistically significant coefficient
while the sign of the coefficient implies that tighter financial conditions cause higher non-performing loans.
This supports our view that financial conditions take account for the dynamics of bad loans after the crisis.
In the upcoming period, the course of global policy normalization may affect and even tighten financial
conditions, thereby causing non-performing loans to gain momentum. All these analysis results signal challenges
and prospects regarding the maintenance of financial stability and the conduct of monetary policy.

Anahtar Kelimeler

Non-performing loans, Turkish banking sector, Global crisis, Financial conditions index, Financial stability

Kaynakça

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