IDEAS home Printed from https://ideas.repec.org/a/acc/malfin/v40y2025i124p1-20.html

Sovereign Risk and Lending Behavior of Banking Industry: Evidence from Turkey’s Credit Market

Author

Listed:
  • Osman Altay

    (Istanbul Commerce University)

Abstract

This study examines how sovereign risk influences Turkish commercial banks' lending behavior, focusing on asymmetric effects in commercial loan pricing. Using the Momentum Threshold Autoregressive (MTAR) model, we analyze the relationship between CDS premiums (a sovereign risk proxy) and lending variables. Results reveal strong cointegration between CDS spreads and Turkish Lira commercial loan rates, with asymmetric adjustments - banks rapidly raise rates when sovereign risk increases but show reluctance to reduce them during risk declines. While sovereign risk doesn't significantly affect loan volumes or default rates, it substantially impacts borrowing costs, demonstrating credit market rigidity. These findings highlight the procyclical nature of Turkey's credit market and validate the MTAR model's effectiveness in capturing nonlinear risk dynamics. The study contributes novel evidence that risk transmission mechanisms in emerging markets operate differently than in advanced economies, particularly in how sovereign risk primarily affects loan pricing rather than credit supply.

Suggested Citation

  • Osman Altay, 2025. "Sovereign Risk and Lending Behavior of Banking Industry: Evidence from Turkey’s Credit Market," Journal of Finance Letters (Maliye ve Finans Yazıları), Maliye ve Finans Yazıları Yayıncılık Ltd. Şti., vol. 40(124), pages 1-20, October.
    • Handle: RePEc:acc:malfin:v:40:y:2025:i:124:p:1-20
    DOI: https://doi.org/10.33203/mfy.1653601
    as

    Download full text from publisher

    File URL: https://dergipark.org.tr/tr/download/article-file/4671668
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.33203/mfy.1653601?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Viral Acharya & Itamar Drechsler & Philipp Schnabl, 2014. "A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk," Journal of Finance, American Finance Association, vol. 69(6), pages 2689-2739, December.
    2. Bryan Hardy & Sonya Zhu, 2023. "Covid, central banks and the bank-sovereign nexus," BIS Quarterly Review, Bank for International Settlements, March.
    3. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    4. Si Guo & Yun Pei, 2023. "The impact of sovereign defaults on lending countries," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 345-374, January.
    5. Tsagkanos, Athanasios & Siriopoulos, Costas, 2015. "Stock markets and industrial production in north and south of Euro-zone: Asymmetric effects via threshold cointegration approach," The Journal of Economic Asymmetries, Elsevier, vol. 12(2), pages 162-172.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Claudio Borio & Marc Farag & Fabrizio Zampolli, 2023. "Tackling the fiscal policy-financial stability nexus," BIS Working Papers 1090, Bank for International Settlements.
    2. Bats, Joost V. & Houben, Aerdt C.F.J., 2020. "Bank-based versus market-based financing: Implications for systemic risk," Journal of Banking & Finance, Elsevier, vol. 114(C).
    3. Arghyrou, Michael G & Gadea, Mar a Dolores, 2019. "Private bank deposits and macro/fiscal risk in the euro-area," Cardiff Economics Working Papers E2019/6, Cardiff University, Cardiff Business School, Economics Section.
    4. Afonso, António & Arghyrou, Michael G. & Gadea, María Dolores & Kontonikas, Alexandros, 2018. "“Whatever it takes” to resolve the European sovereign debt crisis? Bond pricing regime switches and monetary policy effects," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 1-30.
    5. Baṣkaya, Yusuf Soner & Hardy, Bryan & Kalemli-Özcan, Ṣebnem & Yue, Vivian, 2024. "Sovereign risk and bank lending: Evidence from 1999 Turkish Earthquake," Journal of International Economics, Elsevier, vol. 150(C).
    6. G. Arghyrou, Michael & Gadea, Maria-Dolores & Kontonikas, Alexandros, 2024. "Private bank deposits and macro/fiscal risk in the euro-area," Journal of International Money and Finance, Elsevier, vol. 140(C).
    7. Chiu, Chien-Liang & Chang, Ting-Huan, 2009. "What proportion of renewable energy supplies is needed to initially mitigate CO2 emissions in OECD member countries?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(6-7), pages 1669-1674, August.
    8. Adler, Gustavo & Lizarazo, Sandra, 2015. "Intertwined sovereign and bank solvencies in a simple model of self-fulfilling crisis," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 428-448.
    9. Nicolas Canry & Julien Fouquau & Sébastien Lechevalier, 2011. "Sectoral Price Dynamics in Japan: A Threshold Approach," Economics Bulletin, AccessEcon, vol. 31(2), pages 1322-1335.
    10. Fernando Broner & Daragh Clancy & Aitor Erce & Alberto Martin, 2022. "Fiscal Multipliers and Foreign Holdings of Public Debt," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(3), pages 1155-1204.
    11. Oro, Oro Ufuo & Alagidede, Paul, 2018. "The Nature of the finance–growth relationship: Evidence from a panel of oil-producing countries," Economic Analysis and Policy, Elsevier, vol. 60(C), pages 89-102.
    12. Jean C. Kouam & Simplice Asongu, 2022. "The non-linear effects of fixed broadband on economic growth in Africa," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(5), pages 881-895, August.
    13. Lianjie Duan, 2022. "Estimation of export cutoff productivity of Chinese industrial enterprises," PLOS ONE, Public Library of Science, vol. 17(11), pages 1-16, November.
    14. Khémiri, Wafa & Noubbigh, Hédi, 2020. "Size-threshold effect in debt-firm performance nexus in the sub-Saharan region: A Panel Smooth Transition Regression approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 335-344.
    15. Maridueña-Larrea, Ángel & Martín-Román, Ángel L., 2023. "The asymmetric cyclical behaviour of female labour force participation in Latin America," MPRA Paper 117408, University Library of Munich, Germany.
    16. Simplice A. Asongu & Nicholas M. Odhiambo, 2020. "Insurance Policy Thresholds for Economic Growth in Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 32(3), pages 672-689, July.
    17. Abbassi, Puriya & Bräuning, Falk & Fecht, Falko & Peydró, José-Luis, 2014. "Cross-border liquidity, relationships and monetary policy: Evidence from the Euro area interbank crisis," Discussion Papers 45/2014, Deutsche Bundesbank.
    18. Lifang Yan & Wenzhong Ye, 2023. "How Do House Prices and Financial Expenditure Affect Birth Rate? New Evidence from the Dynamic Threshold Panel Model," Sustainability, MDPI, vol. 15(4), pages 1-17, February.
    19. Gerardo Manzo & Antonio Picca, 2020. "The Impact of Sovereign Shocks," Management Science, INFORMS, vol. 66(7), pages 3113-3132, July.
    20. Fang, Hao & Chung, Chien-Ping & Lee, Yen-Hsien, 2025. "Moderating effect of credit growth for financial development on economic growth: Considering banking crises and endogeneity," The Quarterly Review of Economics and Finance, Elsevier, vol. 104(C).

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:acc:malfin:v:40:y:2025:i:124:p:1-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Süleyman Kale (email available below). General contact details of provider: https://dergipark.org.tr/en/pub/mfy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.