Bank-specific and Macroeconomic Determinants of Commercial Bank Credit Risk: Empirical Evidence from Turkey

In this thesis, we analyzed the relationship between the ratio of non-performing loans to total loans as the proxy for credit risk, profitability of banks and macroeconomic factors in the Turkish banking sector, considering 7 banks within a 9-year period from 2007 until 2015. We used a panel data to investigate the relationship, and found out bank-specific factors—bank profitability (ROE and ROA), market power (bank size), capital adequacy, and management quality and liquidity ratio—exert various degrees of influence on non-performing loans, and consequently, credit risk of Turkish banks. We discovered that although both macroeconomic factors and bank-specific factors serve as determinants of credit risk exposure of Turkish banks, bank-specific factors are however the most important determinants of credit risk within Turkish banks. We concluded by recommending some possible solutions to the problems we came across in this thesis.