The effect of banks' foreign debt on domestic credit volume: The case of Turkey

In this thesis, the importance of financial institutions for economic activity with increasing financial depth and the share of the banking sector, which stands out with the largest share, are summarized together with the development of bank balance sheets over time. The strong relationship between the loan/deposit ratio and the non-core funding rate motivates the effect of foreign debt on loan supply, which is the main subject of this thesis. For this reason, Granger causality and ARDL limit test were applied to examine the correlation between these two series. The findings obtained in line with the literature provide a basis for establishing a criterion for the effect of the increase in the amount of foreign debt on economic activity through the credit channel. According to the estimation results of the panel fixed effect model with the microdata obtained on a monthly and bank basis, Turkish banks use the additional resources they get through foreign borrowing in liquid asset items in the short term, but increase their loan conversion rates as the time interval gets longer. In addition, in the thesis, it has been investigated whether the loan conversion rates differ on the basis of borrowing type and bank group. According to the findings, we observe that the conversion rates of banks' short-term deposit and repo type borrowings to loans are smaller than those of longer-term borrowing types. As a result of the analysis made on the basis of the bank group, the increase in foreign borrowing of banks with foreign capital has less impact on loans compared to other banks.