Investigating the relationship of profitability with balance sheet structure, asset quality and liquidity in commercial banks and a sample application

The purpose of this study is to examine the relationship between profitability and balance sheet structure, asset quality and liquidity in commercial banks. Banks have an important role in the financial system in terms of the functions they undertake. In Turkey, important problems have occurred in the the sector associated with banking in historical processes, but the sector associated with banking was restructured in 2001 and a significant development process started with the new programs implemented. Identifying and managing the relationship between profitability and balance sheet structure, asset quality and liquidity in the banking sector has become more important following the worldwide crisis of 2008. The deterioration of asset quality of banks due to non-performing loans, the deterioration of balance sheet structure and the weakening of liquidity not only led to changes in their profitability, but also had a negative impact on the financial system and economic stability. Based on this, this research examines "the correlation among the financial gains or profits of commercial banks in the Turkish banking system and their balance sheet structure, asset quality and liquidity". Within the scope of the study, 49 commercial banks with public capital, private capital and foreign capital operating in the Turkish banking system for the period of 2011-2021 are included. "Return on assets" and "return on equity" are used as the measures of bank profitability through two models. Multiple regression and correlation analyses were conducted using the SPSS 21 package program. As a result of the Panel Data analyses, the variables affecting "Profitability in relation to the average total resources" and " Profitability in relation to the average equity" within the financial institutions were investigated. In this context; "Current Receivables/Total Loans", "Liquid Assets/Total Assets", "Capital Adequacy Ratio", "Total Revenues/Total Expenses", "Total Deposits/Total Assets", "FX Assets/FX Liabilities", "Interest Income/Interest Expenses", "Total Loans/GDP" and "Bond Interest Rates" variables are found to have a significant effect on "Return on Average Assets" since their p values are less than 0.05. On the other hand; "Non-Performing Loans/Total Loans", "Liquid Assets/Short-Term Liabilities", "Liquid Assets/Total Assets", "Capital Adequacy Ratio", "Total Loans/Total Deposits", "Total Loans/Total Assets", "Total Deposits/Total Assets", "FX Assets/FX Liabilities" variables have a significant effect on "Return on Average Equity", "Total Loans/GDP" and "Bond Interest Rates" have no significant effect on "Return on Average Equity", whereas "Interest Income/Interest Expenses" and "Total Income/Total Expenses" have a significant effect on "Return on Average Equity".