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Journals / Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty / 2024 / Volume: 11 Issue: 4

An Investigation of the Relationship Between Banks' Use of Derivative Products and Sectoral and Macroeconomic Factors: An Application on the Turkish Banking Sector

Yusuf Pala(AMASYA ÜNİVERSİTESİ, GÜMÜŞHACIKÖY HASAN DUMAN MESLEK YÜKSEKOKULU)0000-0002-8835-0157
Ali Hepşen(ISTANBUL UNIVERSITY)0000-0002-3379-7090
Pages
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Publication Date
2024-12-31
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AI Summary & Key Takeaways

AI Insight
⚡ TL;DR(Too Long; Didn't Read)

To counteract this trend, regulators could impose limits on how much banks can use derivative products, with the limits varying based on the bank's size, thereby reducing the incentives for large banks to engage in such practices.

📌 3 Key Takeaways

🎯
Objective & Hypothesis:This study aims to identify the factors determining the use of derivatives in the banking sector.
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Key Findings & Data:The study sample consists of 23 deposit banks operating continuously in the Turkish banking sector between 2009 and 2022.
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Conclusion & Impact:To counteract this trend, regulators could impose limits on how much banks can use derivative products, with the limits varying based on the bank's size, thereby reducing the incentives for large banks to engage in such practices.
🔬Design:Modeling & Simulation
📍Scope:2009 Verileri
⚙️Variables:Turkish Banking Sector · Deposit Banks · Derivatives

Abstract

This study aims to identify the factors determining the use of derivatives in the banking sector. The study sample consists of 23 deposit banks operating continuously in the Turkish banking sector between 2009 and 2022. Derivative products classified as forward foreign exchange transactions, swap currency transactions, swap interest rate transactions, futures transactions, and option transactions are analyzed in terms of selected financial indicators of banks, their characteristics, and their relationship with macroeconomic variables such as inflation. In the study, the random effect panel Tobit regression model is used as a method. The study's findings demonstrate that banks' derivative activities are significantly influenced by their on-balance sheet FX position. Size, capital, credit risk pressure, inflation, and foreign ownership strongly influence banks' use of derivatives. According to the study's findings, banks primarily use derivatives for hedging in over-the-counter market transactions and for speculation in organized market transactions. However, it has been observed that the drive for speculative trading is dominant in large banks. To counteract this trend, regulators could impose limits on how much banks can use derivative products, with the limits varying based on the bank's size, thereby reducing the incentives for large banks to engage in such practices.

Özet

This study aims to identify the factors determining the use of derivatives in the banking sector. The study sample consists of 23 deposit banks operating continuously in the Turkish banking sector between 2009 and 2022. Derivative products classified as forward foreign exchange transactions, swap currency transactions, swap interest rate transactions, futures transactions, and option transactions are analyzed in terms of selected financial indicators of banks, their characteristics, and their relationship with macroeconomic variables such as inflation. In the study, the random effect panel Tobit regression model is used as a method. The study's findings demonstrate that banks' derivative activities are significantly influenced by their on-balance sheet FX position. Size, capital, credit risk pressure, inflation, and foreign ownership strongly influence banks' use of derivatives. According to the study's findings, banks primarily use derivatives for hedging in over-the-counter market transactions and for speculation in organized market transactions. However, it has been observed that the drive for speculative trading is dominant in large banks. To counteract this trend, regulators could impose limits on how much banks can use derivative products, with the limits varying based on the bank's size, thereby reducing the incentives for large banks to engage in such practices.

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Cite This Article

Pala, Y., Hepşen, A. (2024). An Investigation of the Relationship Between Banks' Use of Derivative Products and Sectoral and Macroeconomic Factors: An Application on the Turkish Banking Sector. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty, Volume: 11 Issue: 4. https://doi.org/10.30798/makuiibf.1498572

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