Analysis of the relationship between participation banking sector profitability and internal factors and macroeconomic indicators: The case of Turkey

In this study, it is aimed to determine the factors affecting the return on assets and return on equity of the participation banking sector in Turkey. In this direction, the short-tern and long-term relationships of return on assets and return on equity of the Turkish participation banking sector between 10 variables of the sector, which are considered as internal factors, and 14 variables, which are considered as macroeconomic indicators, are investigated with the ARDL Boundary Test approach. According to the results obtained from the models established with internal factors, cash and cash equivalents, derivative financial assets, receivables from leasing transactions and total funds allocated have short-term and long-term effects on profitability and, borrowings, derivative financial liabilities and liabilities from lease transactions have short-term effect on profitability. On the other hand, the results obtained from the models established with macroeconomic indicators show that the Euro exchange rate has a short-term effect, gold prices has a long-term effect and USD exchange rate has both short-term and long-term effects on profitability. As for the macroeconomic variables related to production, it is determined that while gross domestic product growth has short-term effect on profitability, industrial production index affected profitability both in the short term and in the long term. It has been concluded that deposit interest rate, consumer loan interest rate, consumer price index and producer price index have only a short-term effect on the profitability of the participation banking sector. Key Words: Participation Banking, Profitability, Internal Factors, Macroeconomic Indicators, ARDL Boundary Test.