Defining Influential Factors of Capital Adequacy Ratio: An Examination upon Turkish Banking Sector (2006/Q1-2019/Q1)

Mustafa Tevfik Kartal

doi:10.2139/ssrn.3644679

Abstract

Capital adequacy ratio (CAR) of the Turkish Banking Sector decreased dramatically from 30.9% in 2003 to 17.1% as of 2019 May. This figure shows that although TBS has still relatively high CAR compared to many countries, unfortunately there is a decreasing trend. A downward trend in CAR constitutes risks due to the limiting of providing credits. Therefore, the level of CAR has importance for making a positive contribution to sustainable economic growth. So, influential factors of CAR should be determined first. In this context, Multivariate Adaptive Regression Splines (MARS) method, 14 explanatory variables, and quarterly data are used for the period of 2006/Q1-2019/Q1. It is determined that credits/total assets ratio, legal equities, risk weighted assets, nonperforming loans (NPL), NPL/total credits ratio, and credit/deposit ratio are influential factors on CAR in Turkey.

Highlights

Countries have different financial systems from each other
Most of the countries, including emerging countries and Turkey, has a bank-based financial system which means that these countries provide most of the needs of funding for economic activities from banks (Kartal et al, 2018, Kartal, 2019)
BF14 has a negative effect if NPLTC has a value below 3.42% and EQITY is above 129.88 billion TL

Summary

Introduction

Countries have different financial systems from each other. As general, there are two types of financial systems, which are the bank-based and the market-based systems. Most of the countries, including emerging countries and Turkey, has a bank-based financial system which means that these countries provide most of the needs of funding for economic activities from banks (Kartal et al, 2018, Kartal, 2019). For this reason, banks and banking are important in such countries (Dinçer et al, 2016). That is why developments in financial systems and banking sectors have importance for the macroeconomics of countries (Kar et al, 2008). In addition to BRSA, other regulatory bodies could make secondary regulation on TBS

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