The effects of restructuring bank loans on the Turkish banking sector in changing macroeconomic conditions

Problems in bank loan repayments have increased in the changing macroeconomic conditions seen in recent years, changes marked by continuous increases in the foreign exchange rate, rise of inflation, and higher interest rates, and therefore there has been a substantial rise in the number of loans that are nonperforming or under close monitoring. Among the method banks apply to address non-performing loans, the re-structuring of loans is the primary method. However, while this common measure of restructuring loans to facilitate the collection capability of non-performing loans and to prevent borrowers' loans from becoming non-performing offers an expedient relief to the parties in the short-term, it tends to transform into a recurring course of action in the long run and thereby does not solve the problems but rather, increases the uncertainty in the banks' quality of assets. At the same time, today, with the gradual increases seen in resource costs, the continuation of extending resources to high-risk borrows rather than to new and more profitable customers harms the profitability perceptions of banks. In this study, the effects of the restructuring measures applied in the Turkish banking sector through concessions, such as extending maturities, creating new payment plans, granting or extending grace periods, lowering interest rates, deferring principal and interest payments or partially or totally cancelling them, were examined using return on assets (ROA) and return on equity (ROE) as the indicators of profitability. This study also examines the differences in the way state, private, and foreign banks apply these measures and their effects. In assessing the data, this study applied panel data analysis, which involved implementation of the pooled least squares, fixed effects, and random effects models on the balanced panel data set of 11 bank-specific and 4 macroeconomic variables that were calculated on the basis of balance sheets, income statements, and footnotes from the 1st quarter of 2009 and the 3rd quarter of 2020 of 14 deposit banks operating in the Turkish banking sector. According to the analysis results, loan restructuring in the Turkish banking sector has a significant negative effect on the banking sector's return on assets (ROA) and return on equity (ROE). Accordingly, a 1% increase in the rate of restructured loans at the 5% significance level causes a 0,04% decrease in return on assets (ROA) and a 0,24% decrease in return on equity (ROE) in the Turkish banking sector. In examining the results of other independent variables included in the analysis, it was found that return on assets (ROA) and return on equity (ROE) had a significant positive relationship with non-interest income as a percentage of total assets (NIITA), net interest income after special provisions as a percentage of total assets (NIIASPTA), total deposits as a percentage of total assets (TDTA), equity as a percentage of total assets (ETA), and consumer price index (CPI), and a significant negative relationship with general costs as a percentage of total assets (OthCTA), total loans as a percentage of total assets (LoanR), ratio of non-performing loans (NPL), and interest rates on deposits (IRD). Return on assets (ROA) and return on equity (ROE) had no significant relationship with liquidity rate (Liqrate), Gross Domestic Product (GDP), and Exchange rate (FX) variables. The analysis results on the differences between state, private, and foreign banks showed that there was a significant negative relationship between restructuring loan rates in private capital banks and return on assets (ROA) and return on equity (ROE) and a negative relationship between restructuring loans in foreign capital banks and return on assets (ROA). According to the test results conducted for the state banks, no significant relationship was found between these variables.