(Micro-Variables That Affect Bank Profitability: A Research on The Domestic and Foreign Banks in Turkish Banking Sector)

Abstract

Purpose - In this study, it is aimed to determine the internal factors at the bank level that affect the profitability of domestic and foreign deposit banks operating in the Turkish banking sector in the period of 2009-2017. Design/methodology/approach – Financial data of the banking sector has the feature of a balanced panel. The data used in this study, the Banks Association of Turkey has been compiled from data published on the site during certain periods. Subject of the study is 23 deposit banks which are 11 of them domestic and 12 of them foreign banks. In the application, which was carried out with Panel data analysis method using annual frequency data of these banks between 2009 and 2017, the asset profitability variable was used as a measure of profitability of deposit banks. Findings - According to the results of the study, the asset profitability of domestic deposit banks; it is significantly affected by variables such as bank age, loan-to-deposit ratio and financial asset ratio. When the findings obtained from the panel data analysis are considered in terms of foreign banks, it is observed that the main determinants of the asset profitability of banks are respectively internal variables such as growth in deposits, deposit-loan ratio, capital adequacy ratio, personnel expenses, net fee and commission income. In addition, it has been determined that there is an inverse-U shaped non-linear relationship between the loan-to-deposit ratio and the profitability measures of deposit banks. Discussion - The profitability of banks is affected by many internal and external factors. Besides uncontrollable external factors, controllable bank-specific factors have a significant impact on profitability.