Factors explaining the real sector credit growth in Turkish economy and the effects of credit boom-bust cycles

This study constitutes an aggregate analysis for Turkish Economy in terms of presenting an outlook on the credit cycles, credit growth rates and its firm-level determinants. In this thesis, my aim is to find out which firm-level dynamics are important in explaining the real sector credit growth rates in Turkish economy and how this effect changes in periods of extensive credit growth and crunch periods. In first section I identified the extreme credit episodes in Turkey between 2006 and 2016 and explored the credit boom (expansion) and bust (crunch) periods by using Hodrick-Prescott filtering methodology. In the second part I estimated the firm-level determinants of company credit growth rates. To do so, I investigated the balance sheet data of nearly 14 000 firms surveyed in Company Accounts Database of Central Bank of Turkey spanning from 2007 till 2016. I used certain balance sheet ratios as explanatory variables for a fixed-effect regression model and find out which firm dynamics are critical in terms of explaining credit growth rates of companies. I found that any increase in Firm Size, Financial Expenses/Assets and Accounts Receivable/Sales, decreases the credit growth rates of companies. On contrary, any rise in Cash/Assets, Net Income/Assets and Debt/Assets increases the credit growth rates. In the last part, I tried to incorporate the effects of extreme credit cycle periods into the credit growth patterns of the firms. I launched interaction variables to combine the explanatory variables with credit cycle episodes. Results showed that the effect of some explanatory variables on credit growth rate differs during credit boom and bust periods.