Does asset diversification in banks reduce risk? Turkey case

Abstract

The banking sector is one of the leading sectors in a country's economy. The fact that banks are financially sound ensures their sustainability on the one hand and a sustainable profit level on the other. In the banking sector, where there is intense competition, it is a necessity to offer products that are suitable for the conditions of the day and the needs of customers. In this context, it is possible to see the usage and distribution of the resources of banks' assets in different areas. At the same time, banks assume different risks at every stage of their activities. In this study, it is investigated whether the diversification of banks' asset items has a financial impact on the risk level. In this context, panel data analysis was conducted by taking into consideration the data of the 15 largest banks operating in the Turkish Banking Sector for the period 2008-2017, and the relationship between banks' asset diversification and riskiness was investigated. While this relationship was found in some banks, it was observed that some banks did not.