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Risk management and capital adequacy in Turkish participation and conventional banks: A comparative stress testing analysis

Author

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  • M. Kabir Hassan
  • Omer Unsal
  • Hikmet Emre Tamer

Abstract

In this study, we investigate changes in banks' capital adequacy ratio (CAR) under different stress scenarios and examine the results by comparing conventional banks to participation banks in Turkey. Our results report that the capital adequacy ratio of the banks declines substantially given the stress scenarios. We find that participation banks in Turkey suffer more in declined capital adequacy ratio compared to conventional banks. Our findings reveal that participation banks in Turkey are more sensitive to sudden changes in exchange rates and increased non-performing loans. However, this sensitivity is in regards to capital adequacy, not profit. Overall, our study shows the effect of stress in the banking sector by contributing to the existing literature.

Suggested Citation

  • M. Kabir Hassan & Omer Unsal & Hikmet Emre Tamer, 2016. "Risk management and capital adequacy in Turkish participation and conventional banks: A comparative stress testing analysis," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(2), pages 72-81, June.
    • Handle: RePEc:bor:bistre:v:16:y:2016:i:2:p:72-81
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    Citations

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    Cited by:

    1. Coban, Mehmet Kerem, 2019. "Compliance forces, domestic policy process, and international regulatory standards: Compliance with Basel III," OSF Preprints x32nw, Center for Open Science.
    2. Belkhir, Mohamed & Grira, Jocelyn & Hassan, M. Kabir & Soumaré, Issouf, 2019. "Islamic banks and political risk: International evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 39-55.
    3. Hassan, M. Kabir & Aliyu, Sirajo, 2018. "A contemporary survey of islamic banking literature," Journal of Financial Stability, Elsevier, vol. 34(C), pages 12-43.
    4. M. Kabir Hassan & Md Nurul Islam Sohel & Tonmoy Choudhury & Mamunur Rashid, 2024. "A systematic literature review of risks in Islamic banking system: research agenda and future research directions," Risk Management, Palgrave Macmillan, vol. 26(1), pages 1-29, February.
    5. Muhammad Shehryar & Furrukh Bashir & Kashif Raza & Rashid Ahmad, 2022. "Random Walk Hypothesis: An Empirical Comparison of Shari’ah and Non-Shari’ah Capital Markets of Pakistan and China," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(3), pages 439-447, September.

    More about this item

    Keywords

    Islamic banks; Basel I; Credit risk; Market risk; Operational risk; Stress testing; Scenario analysis; Basel I; Capital adequacy; Turkey;
    All these 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
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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