(The Relationship Between Participation Bank Off-Balance Sheet Transactions and Performance: The Case of Turkey)

Abstract

Purpose – Participation banks cannot act as fast as traditional banks in the evaluation of the funds collected by their nature, and cannot use their funds as efficiently as traditional banks. However, participation banks, like traditional banks, are liable for off-balance sheet transactions to strengthen their capital structures and increase their competitiveness. As a result of the off-balance sheet transactions, participation banks follow up their liabilities, the provision allocated to their assets and the precautionary principle, and follow-up their trust and pledges. In the light of this information, the aim of the study is to examine the causal relationships between the off-balance sheet transactions of the participation banks and the key profitability data and to shed some light on the information users in their decisions. Design/methodology/approach – The Study; The relationship between the off-balance sheet activities and profitability of participation banks, which is partly disadvantaged in the financial system, is also examined, adhering to the same legislation as traditional banks and adhering to the principles of participation banking. The analysis of the relationship between the series of profitability and off-balance sheet transactions of the participation banks was carried out using the "Johansen Cointegration Test and Granger Causality Test", which is one of the time series analyzes. Findings – From the off-balance sheet transactions of participation banks, it is understood that there is a long-term ability to act together between the letters of guarantee it provides and the increase in surety obligations and the profitability of participation banks. In addition, causality relationship was found between the series. Discussion – From the off-balance sheet transactions of the participation banks, it can be stated that the strict banks will have a positive contribution to the net profit of the period, following the strict securities and the accepted avaller group. In addition, since it is stated statistically that the transactions titled guarantee and surety may be a cause of profitability, it can be said that participation banks will contribute to reach their goals in order to increase the weight of guarantee and surety transactions besides murabaha, musharakah and mutual transactions.