Investigation of the factors affecting profitability in the Turkish banking sector with panel data analysis

Banks are the most important institutions in the financial system. Given the predominant share of deposit banking in the Turkish banking system, the analysis of deposit banks becomes more important. Fort this reason, in this thesis, endogenous and exogenous variables affecting bank profitability are analyzed by panel data analysis method. Return on assets, return on equity and net interest margin are used as bank performance indicators. In the short run, return on assets is positively affected by high asset size, management of interest income, high liquid assets, strong shareholders' equity and high capital adequacy. High interest income indicates that banks are able to manage their profitability through their core activities. The analysis revealed that asset size is the variable that increases the greatest influence on both return on assets and return on equity in the short run. While asset size has a negative effect on return on assets and net interest margin in the long run, it has no statistically significant effect on return on equity. In the short run, return on equity is positively affected by asset size, high interest income, deposits, which are more convenient borrowing sources than equity, high capital adequacy and shareholders' equity. Interest income and equity variables are found to be positive factors that contribute positively to bank profitability both in the short run and in the long run. Deposits have a decreasing effect on both return on assets and return on equity in the long run. Exchange rate contributed positively to profitability in the long run. While economic growth increases return on assets and return on equity in the long run, it has no significant effect on net interest margin.