The impact of capital adequacy on the profitability of Turkish deposit banks in the period before and after the implementation of Basel II

Abstract

The aim of this study is to analyze the effect of capital adequacy of Turkish deposit banks on their profitability (ROA). For this purpose, panel data regression analysis was carried out using quarterly data for the period 2007Q4-2020Q3. Capital adequacy ratio (CAR) and the ratio of equity to assets (capital ratio) were used as an indicator of capital adequacy. In addition to these variables, bank-specific and macroeconomic control variables, which have an effect on bank performance, are also added to the model. According to the results, CAR and capital ratio have a positive effect on ROA of banks. In addition, in order to see the effect of the Basel II implementation, the analysis was made under two periods, before and after the implementation of Basel II by Turkish banks. For both periods, the effect of CAR on the profitability was positive at the 5% significance level. Also, a positive and stronger relationship was found between the capital ratio and ROA in the post-Basel II period. This result shows that strong equity structure contributes to high profitability.

The Relationship between Bank Capital, Risk-Taking and Profitability: Fresh Evidence from Panel Quantile Approach

“…The findings show that an increase in the traditional capital ratio increases the ROA in all market conditions. The results obtained in the study are consistent with the findings of Gunes (2014), Lee, Ning and Lee (2015), Okuyan and Karatas (2017), Kocaman et al (2018), Kilic (2019), Coccorese and Girardone (2021), Kaya et al (2022), andBoamah et al(2023); however, it differs from the findings of Nur (2022) and Topak and Talu (2017). They found a negative relationship between the variables.…”

“…The findings reveal that increased banks' RBC levels increase ROA under all market conditions. The findings are consistent with the findings of Celik and Kaya (2019), Coccorese and Girardone (2021), Sanic and Sendeniz-Yuncu (2021), Yaman (2021), Kaya et al (2022), Subhani et al (2022), Boamah et al (2023), and Kaplan et al (2023). However, the findings differ from the findings reported by Aydin (2019).…”

“…In addition, Sanic and Sendeniz-Yuncu (2021) exhibited a positive relationship between RBC and profitability, whereas there was a negative relationship between traditional capital and profitability. Kaya et al (2022) also found a positive relationship between RBC and traditional capital and profitability. Kaplan et al (2023) identified a positive relationship between RBC and profitability in large and medium-sized banks; in contrast, the findings differed according to the profitability indicator in small-sized banks.…”

“…;Mujtaba et al (2022);Nur (2022);Kaya et al (2022);Subhani et al (2022);Boamah et al (2023);Kaplan et al (2023). (2014); Gizaw et al (2015); Lee et al (2015); Jabra et al (2017); Kadioglu et al (2017); Okuyan and Karatas (2017); Topak and Talu (2017); Kocaman et al (2018); Farkasdi et al (2021); Sanic and Sendeniz-Yuncu (2021); Subhani et al (2022); Orgun (2023); Kaplan et al (2023).…”