The impact of risk management on profitability of commercial banks in Turkey

Banks are considered one of the most fundamental financial sectors . Its importance has increased with the increase in the services it offers to companies and individuals. Loans are among the most basic services. Banks are faced with various risks while carrying out their activities, these risks are divided into groups such as credit risks, market risks and operational risks. Not being able to manage any of them will negatively affect its profitability. Thus the banking sector and the economy in general. Therefore, in recent years developed countries and OECD countries have focused on laying the foundations for managing these risks and adopting unified guidelines to mitigate risks. The research aims to determine the effect of risk management on bank profitability in Turkey and whether this effect is positive or negative. To conduct the statistical study, the ten largest banks (commercial banks) were selected and considered as a statistical sample representing the banking sector as a whole, as these ten banks represent 90% of the total assets of commercial banks in Turkey. The research was implemented over a 9-year period from 2013 to 2021. Three variables, namely capital adequacy ratio, non-performing loans ratio and quick liquidity ratio, were adopted to represent risk management. return on assets ratio was adopted as a variable representing banking profitability. The results of the study support the importance of risk management on banking profitability. It also supports the tightening policies of the Central Bank of the Republic of Turkey applied to all banks operating in the Republic of Turkey in the last ten years, and the steps to develop methods for calculating the capital adequacy ratio and monitoring bad loans. Keywords: Banks, Commercial Banks, Profitability, Risk Management, Turkey Risk Management