The Determinants of Loan Approval in The Turkish Banking Sector: A Study of Turkish Commercial Banks

Abstract

The purpose of this paper was to examine and evaluate the effectiveness of the central tendency of the lending behavior of commercial banks and the variables that affects the lending behavior of commercial banks in Turkey. Five variables influencing bank lending activity has been selected and analyzed. The panel FMOLS and DOLS and the Demiterscu and Hurlin causality are used for fifteen commercial banks in Turkey from 1996-2017. The analysis suggested that credit risk has a negative impact on loans; this means that an increase in credit risk will decline the lending behavior of banks. Likewise, both economic growth and monetary policy rate have negative consequences on lending. Thus, an increase in both GDP and interest rate decreases the bank lending, this suggests that the transmission mechanism of the central bank of Turkey is effective in increase the lending rate of banks. The negative relationship between monetary policy rate and bank lending can be attributed to the proper monetary transmission effect. Contrarily, capital adequacy and non-performing loans are positively connected to lending. Thus, an increase in both will increase the lending behavior of the banks by 1.33% and 0.65% respectively. In summary, all the selected explanatory variables are determinants of lending behavior of banks in Turkey