Examination of credit balloons during the Covid-19 pandemic process: a study on the Turkish banking sector

Abstract

Purpose- Banks are one of the most important players in the financial system, which collects the idle funds of the savers and gives loans to the people in need of financing. Banks contribute to economic development and employment by supporting consumption, investment and production with the loans they give. The covid-19 pandemic, which emerged as of the beginning of 2020, has affected all countries socially, culturally and economically. The measures taken to stop the spread of the pandemic caused deterioration in the country's economies. The pandemic caused the supply and demand balance in the economies to deteriorate and increased the liquidity risk of the sectors. This situation experienced by the sectors especially affected banks and credit processes. The aim of this study is to investigate whether the domestic credit volumes of the Turkish banking sector during the covid-19 pandemic period, in the period of March/2020-November/2022, contain a bubble. Methodology- The weekly frequency data set was used in the study. Since the Turkish banking sector loan disbursement volumes are published weekly by the BRSA, the data set is handled on a weekly basis. In the study, the GSADF method was applied to detect the bubbles in the domestic credit volume of the Turkish banking sector. GSADF tests are iterative right-tailed unit root tests. In the study, commercial and other loan disbursement volumes and consumer loan volumes of the banking sector were used as variables. Housing, vehicle and consumer loans are included in consumer loan volumes. Findings- According to the results of the study, 2 bubble movements were detected in the commercial loan and other loan variable and 3 bubble movements in the consumer loans variable at the 1% significance level. It is observed that the third bubble in consumer loans still continues as of November/2022. Conclusion- It is thought that the precautionary packages taken by the economy management to limit the economic and financial effects of covid-19 create credit bubbles. In addition to the support loans provided by public banks to the real sector and exporting companies, interest-free loans to low-income segments on the individual side fueled the formation of a bubble. In this situation, it is thought that the need for cash of people has increased rapidly with the prolongation of the pandemic, and the unemployment of individuals in this process or the decrease in their monthly income may have increased their loan demands. In addition, it is assumed that the successive interest rate cuts made by the Central Bank cause the formation of foam, as the companies borrow in TL and return to foreign currency and turn to commodities to protect themselves against price increases. Keywords: Banking sector, credit balloons, bank credits, GSADF test JEL Codes: G00, G21, C58