Examining the Effect of External Economic Variables on the Profitability of the Turkish Banking Sector Using the OLS and Correlation Methods

The Turkish banking sector, due to its ownership structure, development level, and the nature of its operations, is highly integrated with the global financial system. Therefore, the impact of changes in macroeconomic indicators linked to external economic conditions on banks’ profitability has long been a subject of debate. This study examines the impact of macroeconomic indicators closely linked to the external economy—defined as “external economic variables†—on the sector’s profitability. Using monthly data from 2006 to 2021, we analyze the effects of these variables on return on assets (RoA), return on equity (RoE), net interest margin (NIM), and a composite Profitability Index through OLS regression and correlation analysis. Results indicate that increases in foreign direct investment and the ratio of central government external debt stock to GDP exert a strong and positive influence on profitability measures. Additionally, significant relationships are observed between profitability and the CDS premium, sovereign credit rating, export-to-import coverage ratio, sovereign bond issuance interest rates, and the current account balance. Correlation findings further demonstrate that external economic conditions have a direct and stable impact on RoA, RoE, and the Profitability Index, underscoring the sustained sensitivity of Turkish banking sector profitability to global economic dynamics.