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The Effect of Credit and Market Risk on Bank Performance: Evidence from Turkey

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  • Aykut Ekinci

    (Economist, Department of Risk Monitoring, Development Bank of Turkey, Ankara 06440, Turkey)

Abstract

There is a strong connection between bank performance and economic growth. Therefore, understanding on the effects of credit and market risk on bank performance could contribute to the better functioning of the banking system. This study investigates the effects of credit and market risk, i.e., interest rate and foreign exchange (FX) rate risk, on the bank performance for the Turkish banking sector in a time-varying framework employing the generalized autoregressive conditional heteroscedastic approach for the 18.01.2002-30.10.2015 period by using weekly data. The results suggest two main findings: (i) Credit risk and FX rate have a positive and significant effect, but interest rate has insignificant effect on banking sector profitability, (ii) credit and market risk have a positive and significant effect on conditional bank stock return volatility

Suggested Citation

  • Aykut Ekinci, 2016. "The Effect of Credit and Market Risk on Bank Performance: Evidence from Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 427-434.
    • Handle: RePEc:eco:journ1:2016-02-9
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    More about this item

    Keywords

    Bank Lending Channel; Bank Performance; Credit Risk; Interest Rate Risk; Currency Risk;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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