A Dynamic Approach to Analyzing the Effect of the Global Crisis on Non-Performing Loans: Evidence from the Turkish Banking Sector

A Dynamic Approach to Analyzing the Effect  of the Global Crisis on Non-Performing Loans: Evidence from the Turkish Banking Sector

Title:

A Dynamic Approach to Analyzing the Effect  of the Global Crisis on Non-Performing Loans: Evidence from the Turkish Banking Sector

Number:

16/12

Author(s):

Vuslat Us

Language:

English

Date:

April 2016

Abstract:

This paper analyzes the effect of the global crisis on the determinants of non-performing loans in the Turkish banking sector by using dynamic panel estimation techniques. Empirical findings suggest that non-performing loans present persistence, which is more evident after the crisis, while other regressors have also persistent effects in the post-crisis period. Moreover, non-performing loans are mostly shaped by bank-specific variables before the crisis, whereas, after the crisis, non-performing loans are also driven by macroeconomic and policy-related variables. In particular, the post-crisis significance of GDP, policy rate and sovereign debt shows that robust economic activity, tight monetary policy and strong fiscal balances restrict non-performing loans, thereby enhancing financial stability. On the other hand, the significance of inflation in both sub-periods indicates that commitment to price stability objective is indispensable for limiting non-performing loans and promoting financial stability. In the period ahead, the speed and the direction of normalization in global monetary policies may determine the course of financial conditions, which therefore have implications regarding non-performing loan dynamics and financial stability.

Keywords:

Global crisis, Non-performing loans, Turkish banking sector, Dynamic panel estimation, Persistence, Financial stability, Price stability, Normalization

JEL Codes:

C23; E44; E52; G10; G21

A Dynamic Approach to Analyzing the Effect of the Global Crisis on Non-Performing Loans: Evidence from the Turkish Banking Sector
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