Risk management and a survey about investigating relationship between credit risk and financial covariates by logistic regression in Turkish banking

Credit risk has emerged as the most important factor that explained international financial crisis that have occurred in recent years. Managing credit risk effectively is important for keeping banks' existences and provision of sustainability in financial markets. Credit risk is defined as the potential for loss due to failure of a barrower to meet its contractual obligation to repay a debt in accordance with the agreed terms. The goal of credit risk management is to control the Bank's credit risk that may arise in processes of providing loan. Credit risk assessment also includes strategies that provide maximizing profitability and competitive edge for banks. The determination of the factors separately affecting the credit risk is quite hard because credit risk interacts with other banking risks and affected by macroeconomic factors. Therefore this study emphasizes on defining internal factors that affect credit risk and the ways of controlling these factors. The purpose of the study is to test wheter the credit risk could be explained of financial variables selected in banking sector. In this study, firstly concepts and principles of credit risk management are explained. The financial structure of Turkish banking sector with parameters of last decades has examined in terms of credit risk assesment. At the final part of the study, the relationship between credit risk of 45 banks of Turkish banking sector and their 37 selected financial variables of the year 2013-2014 investigated by using logistic regression. The results of this study are interpreted by comparing with the results of other studies in the literature. Also, most effective financial variables explaining credit risk are identified and precautions that banks' should take to are defined. Key Words: Banking, Risk Management, Credit Risk, Logistic Regression