Effects of derivative instruments banking sector in Turkey

Derivative instruments are products that are created based on different assets such as foreign currency, precious metals, interest, and are used for purposes such as risk management, speculation, arbitrage. Forward, futures, options and swaps are the most commonly known transactions. Banks are one of the key institutions that have undertaken intermediation function between fund holders and those with a fund deficit in the financial system. They always take different risks due to their transactions. Competition has increased rapidly in every field with the effect of globalization, acceleration of capital movements and developments in information systems. Banks can use derivative instruments both for managing different risks and for speculation transactions. In the study, the relationship between derivative instruments with the risk and profitability of Turkish banks was tried to be determined. In this context, the Banks Association of Turkey (TBB) have been taken out of the quarter-term shared bank balance sheets. From December 2002 to September 2019, private, public, foreign capital deposit banks and Turkish banking system data were analyzed comparatively in four groups. The ratios indicating the risk and profitability of banks with the ratio of total derivative transaction volumes were analyzed by Toda-Yamamoto causality method. For the Turkish banking system, generally significant unilateral or bilateral causality relationships have been identified between derivative transaction volumes and the profits and risks of banks.