Alternative Analysis of Bank Lending Channel in Turkey After 2010

Abstract

Traditional bank lending channel in the monetary transmission explains the relationship between monetary policies of Central Banks and the bank lending behavior. In this article, the existence of traditional bank lending channel and an alternative analysis of bank lending in the monetary transmission of Turkey is investigated between 2011 and 2018 using bank level data and GMM method. Additionally, we indicate whether the reaction of banks differ according to their bank specific caharacteristics. Asset quality, capital adequacy, liquidity ratio, asset size and profitability rates are used as bank characteristics. Since Central Bank of Turkey began to use multiple monetary policy tools to cope with financial stability issues at the end of 2010, the choice of an indicator for the monetary policy is important. In this article, we revise the analysis of bank lending view as the key assumptions of traditional bank lending are not valid. Different from prior research, to analyze the change in credit supply we use both monetary policy rates and actual interest rates (BISTREPO and weighted average cost of Central Bank of Turkish Republic) as monetary policy indicators. Using monetary policy rates, our findings indicate that traditional bank lending channel does not work. Using BISTREPO as monetary policy indicator, our findings indicate that it is significant in the credit supply change. Taking the bank characteristics into account only bank size is significant in mitigating the negative effects of monetary policy shocks. This finding shows that banks that have larger asset size may find different funding alternatives and continue to lend during monetary policy shocks. Additionally, when weighted average cost of the CBTR funding are used as a monetary policy indicator, our findings show that this rate is also significant in the credit supply change and similar to prior results higher bank size may mitigate the negative effects of monetary policy shocks.