The factors affecting loan volume: An empirical study on Turkish banking sector

Bank credits arise as one of the prime economic factors not only for the banks in the financial system or the householders but also for the companies and other elements in the system. Besides the credits emerge as one of the factors for understanding and analyzing the money transfer mechanism. Bank credits as one of the vital financial tools which intermediate between the fund demand and supply contribute to the investment expenses by maintaining the fund demanded by the companies and the house holders and as a result the rise in the spending by the householders assures a rise in the total economic output. Credit in substance is an operation of submitting reputation by lending. While the cash credits result directly in consumption and investment the non-cash credits are used for commercial activities and commitments. The effects of credit expansion in 1980's in Turkey as a result of liberalization have been objectively observed. During this period moral hazard and adverse selection issues have been experienced simultaneously and the state to be the main lender as a result of high inflation has ended up with a distortion in the credit market. With regards to the economic crises and financial scandals experienced in these times the Turkish Banking Sector is safe and sound in today. The credit market has happened to be most effective especially after 2005 and has undertaken the vital role in supplying the funds for the economy. During this period the rise in the credit volume and the users of credits have emerged an importance for monitoring the economic targets and macro-prudential measures have been taken as a result. The purpose of this study is to demonstrate the factors which effect the credit allocation in the banking sector with respect to type of banks and credit types and also to understand the most important factor in this process. In this respect, the data from 57 banks including 38 deposit banks, 6 participation banks and 13 investment and development banks between 2005-2016 period has been used on a quarterly basis and obtained from BRSA, TBA, TCB and KAP. The number of observations in each data set changes from 1968 to 2089. Totally 27 variables which are composed of 6 dependent and 21 independent ones. In order to analyze the micro and the macro variables panel data analysis has been run. Furthermore to fix the most convenient micro and macro variables combinatorial variable selection methodology has been preferred. As a result of the study, it has been observed that the micro variables in general are more effective than the macro ones on the credit volume and the NPL ratios, deposits, interest expenses and net interest margin are the most important factors which determine the credit volume. Another result to be kept in mind is that the factors determining the credits of the participation and deposit banks vary.