Abstract
The aim of this study is to analyze the effect of capital adequacy of Turkish deposit banks on their profitability (ROA). For this purpose, panel data regression analysis was carried out using quarterly data for the period 2007Q4-2020Q3. Capital adequacy ratio (CAR) and the ratio of equity to assets (capital ratio) were used as an indicator of capital adequacy. In addition to these variables, bank-specific and macroeconomic control variables, which have an effect on bank performance, are also added to the model. According to the results, CAR and capital ratio have a positive effect on ROA of banks. In addition, in order to see the effect of the Basel II implementation, the analysis was made under two periods, before and after the implementation of Basel II by Turkish banks. For both periods, the effect of CAR on the profitability was positive at the 5% significance level. Also, a positive and stronger relationship was found between the capital ratio and ROA in the post-Basel II period. This result shows that strong equity structure contributes to high profitability.
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