Comparison of factors affecting non-performing loans in participation and conventional banks in Turkey with quantile regression analysis

Banks are one of the most important financial intermediaries in the economy. Banks, which mediate the transfer of funds in the market, transfer funds from the sector with surplus funds to the sector in need of funds. In this process, the lending channel is mostly used. After lending, there is a risk that the loan will not be repaid. When the loans are not repaid, they are called non-performing loans. This study comparatively analyzes the impact of bank-specific and macroeconomic factors on non-performing loans in conventional banks and participation banks. Quantile regression (QR) and OLS estimation method model will be used to measure the effects of bank-specific and macroeconomic variables affecting non-performing loans in conventional banks and participation banks in Turkey. In the study, non-performing loans are used as the dependent variable. Independent variables are divided into two groups as bank-specific and macroeconomic variables. Bank-specific variables are "total loans, net profit, loans/GDP, loans/deposits, return on assets, return on equity and bank size", while macroeconomic variables are "housing interest rate, personal interest rate, commercial interest rate, GDP, inflation, deposit rate and credit risk premium (CDS)". The data in the study covers a total of 39 quarters between the fourth quarter of 2011 and the second quarter of 2021. Data for conventional banks are compiled from FitchConnect database, Central Bank of the Republic of Turkey EVDS database, Presidency Finance Office database, Banks Association of Turkey, Banking Regulation and Supervision Agency, and missing data for some periods are obtained from banks' unconsolidated financial statements. Data on participation banks are compiled from FitchConnect database, Central Bank of the Republic of Turkey (CBRT) EVDS database, Presidential Finance Office database, Participation Banks Association of Turkey and missing data for some periods are compiled from unconsolidated financial statements of banks. Macroeconomic data are compiled from TurkStat and the World Bank database. The study consists of four sections, including the analysis. In the first section, the main outlines of the loan concept in the conventional and participation banking sector are given. In the second section, the concept of non-performing loans in the conventional and participation banking sector will be outlined. In the third section, credit risks, management and types of credit risks in the banking sector are discussed comparatively for conventional banks and participation banks. In the fourth and final section, bank-specific and macroeconomic variables that are determinants of non-performing loans are analyzed by quantile regression method. In this section, national and international sources in the literature, the methodology of the research, the variables used in the analysis and the interpretations of the analysis results are made in terms of both conventional and participation banks. Three different equations were tried during the analysis and all of them are explained in the study since there is a similarity in the levels of significance for all results.