Determinants of financial soundness in the Turkish banking sector: ARDL bounds testing approach (2005–2024)

The main purpose of this study is to investigate the key determinants of financial soundness in the Turkish banking sector. The analysis is based on quarterly data covering the period from 2005 to 2024. The dependent variable of the model is the Financial Soundness Indicator (FSI), which was obtained from the International Monetary Fund (IMF) database. The independent variables were collected from the data system of the Banks Association of Turkey (BAT) and include Capital Adequacy Ratio (CAR), Equity to Total Assets (ETA), Turkish Lira Loans to Total Loans (TL), Total Loans to Total Assets (LTA), Consumer Loans to Total Loans (CL), Return on Assets (ROA), Return on Equity (ROE), and Other Operating Expenses to Total Assets (OPEX). To examine the existence of a long-run relationship among the variables, the ARDL bounds testing approach was employed. The findings reveal that the financial soundness of the Turkish banking sector is closely linked to capital adequacy, profitability indicators, and loan composition. The presence of positive and statistically significant long-run coefficients indicates that a strong capital structure and sustainable profitability enhance financial soundness. These results underline the importance of policies aimed at strengthening the capital base and supporting effective risk management in order to promote financial resilience in the banking sector.