Analysis of the relationship between the use of derivative products and the profitability performance of banks

In today's world, rapid changes and transformations are experienced in financial markets, as in almost all areas. Especially with the technological developments in the financial field, it is easier to invest in financial assets. Volatility in the prices of financial assets bring along some risks. Derivative markets, which were initially created to hedge against risks, are used mostly for speculation today. In this thesis, it is aimed to investigate the effect of derivative products on the profitability of banks, since the use of derivative products, which are widely used in the world, has become widespread in the Turkish banking sector especially in recent years. The effects of derivative products, which are widely used in the Turkish banking sector, on banks' return on assets, return on equity and net interest margin for the periods 2005Q4-2020Q4 were analyzed using the Vector Autoregressive (VAR) Model and deposit banks and participation banks were analyzed separately. According to the VAR model findings; it was observed that in the use of derivatives by deposit banks, net interest margin responded significantly against 1 standard false shock, while in the use of derivatives by participation banks, return on equity responded significantly. In the analysis of variance decomposition of deposit and participation banks, it was observed that the use of derivatives by deposit banks had the highest effect on net interest margin, then on return on assets and return on equity, respectively, while the use of derivatives in participation banks had the highest effect on return on equity. Also, with the Toda-Yamamato causality test, it was determined that there is a two-way relationship between the use of derivatives in participation banks and return on equity.