The effects of macroeconomic indicators on Turkish banking sector performance

Examining the performance of banks, an important component of the financial system, forms a point of interest in economy and finance. Within this context, it is possible to use different performance rating methods as a criterion of regular and effective action of the banks. CAMELS rating system, which is an off-site monitoring system, is one of the most important performance evaluation tools that evaluate financial indicators together. In this respect, the main goal of this study is to anaylze the financial performance of the banking sector, which is one of the significant components of the financial system in Turkey, and macroeconomic indicators. In this study, the data of 2003:Q3-2016-Q2 period belonging to 22 deposit banks were used, including 3 state-owned and 7 private deposit banks in Turkey and 12 foreign capital banks established and/or opened branches in Turkey and the data were analyzed by using the VAR method. The CAMELS Analysis of the Turkish Banking Sector has been made both in general and in groups and performances were also evaluated for each CAMELS component. In addition to these, the effects of the variables of consumer price index, gross domestic product and interest rates, which are important determinants of the economy on the performance of the Turkish Banking Sector, were investigated by using causality analysis. According to the results, it is determined that the foreign deposit banks have the highest performance for the dimension of the capital adequacy, asset quality and liquidity; the state-owned banks have highest performance for the dimension of the management capability and earnings; and the private deposit banks have the highest performance for the market sensitivity dimension. Moreover, Turkish Banking Sector Performance has a two-way causality relationship with consumer price index and interest rates and an one-way causality relationship with gross domestic product. Key Words: CAMELS, Financial Performance, Banking Sector, Time Series Analysis, VAR Analysis