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Analysis Of The Relationship Between Liquidity Risk And Profitability In Banking: An Application In The Turkish Banking Sector

Author

Listed:
  • Şakir Sakarya

    (BALIKESIR UNIVERSITY)

  • Fatih Karakaş

    (BALIKESIR UNIVERSITY)

Abstract

This study examines the impact of liquidity risk arising from maturity mismatch on bank profitability in the Turkish banking sector. The research employs panel data analysis using annual data from 19 commercial banks operating in Turkey during the 2003-2023 period. The study analyses the effects of capital adequacy, balance sheet structure, asset quality, and liquidity variables on three different profitability measures (return on assets, return on equity, and pre-tax return on assets) using fixed effects model with Driscoll-Kraay estimator. The most significant finding of the research is that the net liquidity gap up to 3 months (maturity mismatch) has a strong and positive effect on bank profitability. The results show that as banks' liquidity risk increases, their profitability also increases. Additionally, it was found that capital adequacy increases profitability, while non-performing loans negatively affect profitability. The findings reveal that the maturity transformation function plays a critical role in the profitability of Turkish banks.

Suggested Citation

  • Şakir Sakarya & Fatih Karakaş, 2026. "Analysis Of The Relationship Between Liquidity Risk And Profitability In Banking: An Application In The Turkish Banking Sector," Ekonomi Maliye Isletme Dergisi, Adil AKINCI, vol. 9(1), pages 95-112, June.
    • Handle: RePEc:gnx:emid43:2026-9-1-1700791
    DOI: 10.46737/emid.1700791
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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