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Predicting Financial Failure Of The Turkish Banks

Author

Listed:
  • M. METE DOĞANAY

    (Çankaya University, Turkey)

  • NILDAĞ BAŞAK CEYLAN

    (Atılım University, Turkey)

  • RAMAZAN AKTAŞ

    (TOBB Economics and Technology University, Turkey)

Abstract

Banks are the most important financial institutions in Turkey because other financial institutions are not developed efficiently yet. Turkish banks experienced financial difficulties and a substantial amount of banks failed in the past. This event urged the government to initiate measures to prevent banks from getting into financial difficulties. As a result of these measures, Turkish banking system currently seems to be very attractive for the foreign investors willing to invest in this sector. One of the main concerns of the foreign investors is a possibility of a new banking crisis although it is very remote at this time. The purpose of this study is to develop early warning systems predicting the financial failure at least three years ahead of financial failure date.A number of multivariate statistical models such as multiple regression, discriminant analysis, logit, probit are used. We found that the most appropriate model is logit. The significant variables obtained from the models explain very well the causes of the bank failures. Our models can be used to assist interested parties to predict the probability of financial failure of Turkish banks.

Suggested Citation

  • M. Mete Doğanay & Nildağ Başak Ceylan & Ramazan Aktaş, 2006. "Predicting Financial Failure Of The Turkish Banks," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 1-19.
    • Handle: RePEc:wsi:afexxx:v:02:y:2006:i:01:n:s2010495206500059
    DOI: 10.1142/S2010495206500059
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    References listed on IDEAS

    as
    1. Ms. Brenda Gonzalez-Hermosillo, 1999. "Determinants of Ex-Ante Banking System Distress: A Macro-Micro Empirical Exploration of Some Recent Episodes," IMF Working Papers 1999/033, International Monetary Fund.
    2. Santoso, Wimboh & Montgomery, Heather & Besar, Dwityapoetra & Hanh, Tran, 2005. "Coordinated failure? a cross-country bank failure prediction model," MPRA Paper 33144, University Library of Munich, Germany.
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    More about this item

    Keywords

    Financial failure; banking; early warning system; bankruptcy; C45; C53; G21; G33;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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