The Determinants of Profitability Large-Scale and Small Scale Turkish Deposit Banks

Abstract

This paper aims to explore the bank-specific and macroeconomic determinants of the banks’ profitability by dividing the Turkish deposit banks into large-scale and small-scale entities. For this purpose, panel data analysis was applied using a fixed effects model, based on quarterly data for the period from March 2009 to September 2020 for 24 deposit banks. Return on assets and return on equity are used as a measure of the banks’ profitability. According to the results, the determinants of profitability differ between large-scale banks and small-scale banks. With respect to the bank-specific determinants, the findings show that the equity/assets, deposits/assets and liquidity ratio have a significant impact on the profitability of large-scale banks, whereas they have no relationship with the profitability of small-scale banks. The profitability of large-scale banks is negatively affected by their asset quality ratios. On the other hand, while the ratio of loans to total assets has no impact on the profitability of small-scale banks, the non-performing loan ratio has a positive impact. While the asset size and income-expense ratios have positive and significant impacts on the profitability of small-scale banks, they exhibit no relationship with the profitability of large-scale banks. With regard to macroeconomic indicators, small-scale banks’ profitability is negatively affected by economic growth, whilst large-scale banks are not. This study is aimed to contribute to the literature by analysing the determinants of Turkish deposit banks’ profitability under the classification of large-scale and small-scale banks.

Indicators of Non-Performing Loan: Does Efficiency Matter?

“…A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. Generally, bank loan is supposed non-performing if the 90 days pass after the due date for the agreed amount related to the principle or interest amount (Badell et al, 2020;Çollaku & Aliu, 2021;Dong et al, 2020;Kaya et al, 2021;Khoirunisa et al, 2022;Kiral, 2020;Mahato, 2021). This loan also called as "bad debt" which is a negative effect on the bank performance.…”