Profitability analyisis in banking sector: An emprical research in Turkey's banking sector

As in many other countries, banking sector plays an important role in Turkey?s economy. An efficiently operating banking sector is important for the economic development of the country. Therefore, to investigate the factors underlying the profitability of the banking sector is crucial not only for bank management and owners, but also for the government and other financial authorities. For this reason, determination of the factors effecting the profitabilty of the banks, has been one of the most popular topics, especially for the researchers who have been working in this field. This study aims to investigate the factors affecting the profitbilty of commercial banks, operating in Turkey, between 2003 January and 2010 May. In this thesis, working with multiple linear regression method, net interest margin and return on assets of the commercial banks in Turkey, are tried to be explained with bank-specific and macro economic variables.When trying to explain the profitability performance of the commercial banks, it is seen that most frequent use of the profitability criterias are banks? return on assets, net interest margin and return on equity; while the variables describing these criterias would be, micro variables which are controlled by the banks themselves, macro variables which are guided by overall economic conditions and financial structure variables which are representing the financial system of the country. In these three groups of explanatory variables, researchers select variables that may vary greatly.Using least squares estimation method, the results of the thesis of the bank specific and macro economic variables affecting commercial bank?s return on assets and net interest margins from 2003 Januaray to 2010 May are that, loans to deposit ratio and non interest income to total assets have a positive affect, but non interest expenses to net income ratio has a negative affect to banks return on assets. Net interest margin of the commercial banks are affected by the ratio of total loans to total deposits, non interest income to total assets ratio and also provisions for non performing loans to non performing loans ratio in the same direction. In addition to these results, provisions for non performing loans to non performing loans ratio and growth in money supply has not reached a statistically satisfactory result with bank?s return on assets. Moreover, non interest expenses to net income ratio and growth in money supply have also no significant effect in commercial bank?s net interest margin in Turkey. When all results combined together, compatible with previous researches, it can easily be said that the bank specific factors affect the commercial bank?s profitability in a quite major way.Keywords: Return on Assets, Net Interest Margin, Commercial Banks, Least Squares Estimation Method, Multiple Linear Regression Method