Factors affecting the profitability of Turkish deposit banks

This thesis explores the factors influencing profitability in Turkish deposit banks over the period from 2016 to 2022, utilizing a panel data analysis. The study encompasses 16 prominent Turkish deposit banks, including Akbank, Alternatif Bank, Anadolu Bank, Denizbank, Fibabank, HSBC Bank, ING Bank, Odea Bank, QNB Finansbank, Şeker Bank, Ziraat Bank, Garanti Bank, Halk Bank, İş Bank, Vakıfbank, and Yapı Kredi Bank. The financial data, sourced from the Banks Association of Turkey (TBB). Key financial ratios are employed as independent variables to assess their impact on two core profitability indicators: Return on Assets (ROA) and Return on Equity (ROE). The analysis utilizes advanced panel data techniques within the Stata software, applying thorough diagnostic tests such as the Hausman test for model specification, along with heteroscedasticity and autocorrelation tests to ensure the reliability of the results. Additionally, the Variance Inflation Factor (VIF) test is utilized to address potential multicollinearity among the variables. The findings reveal that the Capital Adequacy Ratio (CAR), Liquid Assets to Total Assets Ratio (LATA), and Personnel Expenses to Other Operating Expenses Ratio (PEOE) emerge as critical determinants of profitability in the Turkish banking sector. Specifically, CAR exhibits a strong positive correlation with both ROA and ROE, underscoring the significance of a robust capital base for financial stability and enhanced profitability. Similarly, LATA, reflecting a bank's liquidity position, positively influences both profitability measures, highlighting the necessity for effective liquidity management. Furthermore, PEOE's positive impact, although marginally significant, on ROE indicates that prudent management of operating expenses other than the personnel expenses is essential for maximizing equity returns. This research offers deep insights into the key drivers of profitability in Turkish deposit banks, providing valuable guidance for bank managers, investors, and policymakers. The study underscores the imperative of strengthening capital adequacy, optimizing liquidity management, and enhancing operational efficiency to sustain long-term profitability in the banking sector.