Analysis of the effect of non-performing loans on financial variables of the Turkish banking sector

Banks may face a number of controllable and uncontrollable risks while performing their activities. These risks affect the profitability and liquidity of banks to the extent of the risk they are exposed to. Risk management measures taken in banks are aimed at preventing and/or covering the risks that may arise regarding the profitability and liquidity of banks. The size of the non-performing loans they encounter plays an important role in the profitable and sustainable operation of banks operating in financial markets. Within this context, non-performing loans emerge as an important concept that affects the profitability and liquidity-related financial variables of banks. In this study Granger causality test was used to examine the effects of non-performing loans on the financial variables of the Turkish banking sector. The study covers the 132-month period between 2009:01-2019:12 regarding the aggregated data of commercial banks in the sector. According to the results of the analysis, it has been determined that there is a causal relationship between the ratio of the sector NPL (Non-Performing Loans (Gross) / Total Cash Loans), the ratios related to the sector profitability profitability (Profit Before Tax / Average Total Assets, Net Income / Average Total Assets, Net Income / Average Shareholders' Equity), the ratios related to revenue items (Total Interest (Profit Share) Income / Interest (Profit) Bearing Assets Average, Net Interest (Profit) Revenues / Average Total Assets, Fees- Commission and Banking Services Revenues / Average Total Assets, Fees-Commission and Banking Services Revenues / Total Revenues), loan to deposit ratio and the capital adequacy ratio. Keywords: Turkish Banking Sector, Commercial Banks, Credit Risk, Non-Performing Loans, Granger Causality Test.