Micro factors affecting financial performance of deposit and participation banks

This study aims to determine the in-bank factors that affect the financial performance of commercial deposit and participation banks during the period of 2016Q1-2020Q4 through panel data analysis. In this context, factors that affect the financial performance of two different bank groups with different operational processes, regulations, and customer structures can be compared in the banking sector. Financial performance, which is the dependent variable, was measured by return on assets and return on equity. Independent variables were identified as asset size, bank age, credit quality, capital adequacy, and operational efficiency. As a result of the analyses conducted, a statistically significant and negative relationship between bank age and credit quality variables, and return on assets was detected in deposit banks. Furthermore, a statistically significant and positive relationship between asset size, liquidity, capital adequacy variables, and return on assets was found in deposit banks. Additionally, a statistically significant and negative relationship between bank age and return on equity and a statistically significant and positive relationship between the size of the asset, liquidity and capital adequacy variables, and return on equity were found. Based on analyses conducted on participation banks, a statistically significant and negative relationship was found between credit quality and return on assets. Also, a statistically significant and positive relationship was observed between asset size, capital adequacy, and operational efficiency variables, and asset profitability. In addition, a statistically significant and positive relationship has been identified between asset size, liquidity, operational efficiency variables, and return on equity. When the findings are evaluated as a whole, it can be said that the in-bank factors affecting the financial performance of deposit banks are largely similar to the in-bank factors affecting the financial performance of participation banks.