The Impact of Carbon Emissions and Macroeconomic Variables on Banking Stability: A Dynamic Panel Data Analysis of the Turkish Banking Sector

This study contributes to the growing literature on climate-related financial risks by providing policyoriented recommendations for emerging markets such as Türkiye. It also examines the impact of carbon emissions on financial stability in the Turkish banking sector using panel data analysis. A fixed-effects model and the System GMM method were applied using annual data from 20 major banks spanning the 2005–2023 period. Banking stability was measured using three key indicators: the non-performing loan ratio (NPL), financial stability (Z-Score), and return on assets (ROA). The findings reveal that CO₂ emissions have a statistically significant positive effect on NPL and a negative effect on both Z-Score and ROA. Additionally, GDP growth enhances banking stability, while inflation and exchange rate volatility undermine it. These results indicate that environmental risks have become an independent source of vulnerability for banking stability. The study’s original contribution lies in its holistic analysis of banking stability in the Turkish context, incorporating environmental factors alongside traditional macroeconomic determinants. The findings provide policymakers with recommendations to strengthen the banking system’s resilience against climate-related risks.