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How do banks determine their spreads under credit and liquidity risks during business cycles?

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  • Aydemir, Resul
  • Guloglu, Bulent

Abstract

This paper investigates the impact of credit and liquidity risks on banks’ spreads during business cycles in an emerging market using a novel data from January of 2002 to December of 2013. The estimation results highlight the importance of these risks in determining bank spreads. Overall, credit risk is more important than liquidity risk in explaining bank spreads. However, their impacts on spreads differ over business cycles. Specifically, while liquidity risk has a more significant impact on spreads during recessions, credit risk has a more significant impact during economic booms. These findings are consistent with the recent policy measures taken by the regulatory authorities in Turkey.

Suggested Citation

  • Aydemir, Resul & Guloglu, Bulent, 2017. "How do banks determine their spreads under credit and liquidity risks during business cycles?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 147-157.
    • Handle: RePEc:eee:intfin:v:46:y:2017:i:c:p:147-157
    DOI: 10.1016/j.intfin.2016.08.001
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    2. Ozcan Is k & Merve Kosaroglu & Ayhan Demirci, 2018. "The Impact of Size and Growth Decisions on Turkish Banks' Profitability," International Journal of Economics and Financial Issues, Econjournals, vol. 8(1), pages 21-29.
    3. de Moraes, Claudio & Galvis-Ciro, Juan Camilo & Gargalhone, Micheli, 2021. "Financial access and interest rate spread: An international assessment," Journal of Economics and Business, Elsevier, vol. 114(C).
    4. Pires Tiberto, Bruno & Oliveira de Moraes, Claudio & Pio Corrêa, Paloma, 2020. "Does transparency of central banks communication affect credit market? Empirical evidence for advanced and emerging markets," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    5. Samuel Fosu & Albert Danso & Henry Agyei‐Boapeah & Collins G. Ntim, 2021. "Credit information sharing and bank loan pricing: Do concentration and governance matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5884-5911, October.
    6. Konstantins Benkovskis & Olegs Tkacevs & Karlis Vilerts, 2021. "Interest Rate Spreads in the Baltics and the Rest of the Euro Area: Understanding the Factors behind the Differences," Discussion Papers 2021/02, Latvijas Banka.
    7. Ameni Ghenimi & Hasna Chaibi & Azhaar Lajmi, 2020. "The liquidity risk-credit risk-profitability trilogy: A comparative study between Islamic and conventional banks," Economics Bulletin, AccessEcon, vol. 40(3), pages 1900-1913.
    8. Ibrahim, Mansor H., 2019. "Oil and macro-financial linkages: Evidence from the GCC countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 1-13.
    9. Muhittin Kaplan & Mohammed Muntaka Abdul Rahman & Asad-ul-Islam Khan & Hasan Vergil, 2024. "The Triple Impact of Innovation, Financial Inclusion and Renewable Energy Consumption on Environmental Quality in Some Emerging Economies," International Journal of Energy Economics and Policy, Econjournals, vol. 14(4), pages 140-149, July.

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    More about this item

    Keywords

    Bank spreads; Credit risk; Liquidity risk; Business cycles; Turkish banking industry;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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