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A Dynamic Approach to Analyzing the Effect of the Global Crisis on Non-Performing Loans : Evidence from the Turkish Banking Sector

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  • Vuslat Us

Abstract

This paper analyzes the effect of the global crisis on the determinants of non-performing loans in the Turkish banking sector by using dynamic panel estimation techniques. Empirical findings suggest that non-performing loans present persistence, which is more evident after the crisis, while other regressors have also persistent effects in the post-crisis period. Moreover, non-performing loans are mostly shaped by bank-specific variables before the crisis, whereas, after the crisis, non-performing loans are also driven by macroeconomic and policy-related variables. In particular, the post-crisis significance of GDP, policy rate and sovereign debt shows that robust economic activity, tight monetary policy and strong fiscal balances restrict non-performing loans, thereby enhancing financial stability. On the other hand, the significance of inflation in both sub-periods indicates that commitment to price stability objective is indispensable for limiting non-performing loans and promoting financial stability. In the period ahead, the speed and the direction of normalization in global monetary policies may determine the course of financial conditions, which therefore have implications regarding non-performing loan dynamics and financial stability.

Suggested Citation

  • Vuslat Us, 2016. "A Dynamic Approach to Analyzing the Effect of the Global Crisis on Non-Performing Loans : Evidence from the Turkish Banking Sector," Working Papers 1612, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1612
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    More about this item

    Keywords

    Global crisis; Non-performing loans; Turkish banking sector; Dynamic panel estimation; Persistence; Financial stability; Price stability; Normalization;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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