The impact of liquidity risk and credit risk on the performance of the banks: Evidence from commercial banks in Turkey

In this study, the definitions of the concept of risk encountered in all areas of life, the types of risks that arise in the banking sector, the effects of liquidity risk and credit risk on the financial performance of 9 commercial banks operating in the Turkish banking sector were investigated. The financial data of the banks within the scope of the sample created for the period from the first quarter of 2005 to the fourth quarter of 2020 were obtained from the Banks Association of Turkey (TBB) website. Non-performing loans and special provisions data were obtained by the author from the Public Disclosure Platform site. However, participation banks operating in the Turkish banking sector were excluded from the sample and classical panel data analysis was used in the study. Two different financial performance measures were used in the study. These are the return on assets (ROA) and return on equity (ROE) variables, respectively. According to the results of the analysis, it was concluded that the liquidity risk is more related to the return on assets, which is one of the performance indicators of the banks, and that the credit risk is related to both the return on assets and equity. In this context, while the increase in the liquidity risk significantly increases the asset profitability, the increase in the credit risk of the banks significantly increases both the asset and equity profitability. These results emphasize the importance of credit risk for banks and highlight the need for banks to accurately measure and manage credit risk in order to carry out their activities properly.