The effects of the real estate sector on banking crises: A case of Turkey

The starting point of this thesis is the following question: ''Could real estate-originated banking crises experienced in different regions of the world be considered also for Turkey which a has growing economy with construction?'' Based on this, the aim of this thesis is to investigate the role of the real estate sector on possible banking crises in Turkey. In accordance with this purpose, a ''Banking Fragility Index'' is generated as the predictor of banking crises by using normalisation method. This index covers the period between January 1989 and October 2018 and predicts the crises during this period. The variables of the real estate sector, which are thought to affect this index, are analysed with the Markov Switching Model for the period of January 2010-October 2018. It is concluded that a decrease in hedonic housing price index, the increases in individual housing loan, non-performing individual housing loan, housing loan interest rate and housing unit prices of Turkey enhance the banking fragility in a crisis period.