CROSS-BORDER LOAN LIABILITY, THE EXCHANGE RATE AND PROFITABILITY IN THE TURKISH BANKING SECTOR

Özet

We examine how the cross border banking loan liabilities (syndication and securitization loans) andthe exchange rate affect the Turkish banking industry profitability using a balanced panel data for theperiod 2003Q1-2016Q3. We study with different subsamples and model specifications. Overall, we findthat the banking sector financial inflows are positively associated with bank profitability. Specifically, theresults show that the banking sector cross border inflows have significant and positive impact on returnon assets (ROA), return on equity (ROE) and on net interest margin (NIM). The long-term inflowsplay a more important role than the short-term inflows in explaining profitability in all specificationswhile short-term inflows have no any significant effect on these profitability indicators. Moreover, weshow that the exchange rate has significant and negative impact on ROA and ROE and has insignificanteffect on NIM. Our findings are more notable in private banks compared to the whole sample. Giventhe fact that the existing studies examine the banking profitability through aggregate capital inflowsand maturity mismatch, this study will fill a meaningful gap in emerging market literature.