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Factors Affecting Capital Adequacy: An Application for the Turkish Banking Sector

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  • Özgür Özel

    (Ministry of Industry and Technology)

Abstract

The adequacy of bank capital according to its risks is one of the leading conditions for the protection of its financial system. In this study, the long-term cointegration relationship between the capital adequacy ratio (CAR) variable of the Turkish banking sector for the period 2010-2022 and the NPL ratio and loan deposit ratio variables was investigated. As a result of the Johansen cointegration test, the existence of a long-term cointegration relationship between the variables was determined. Moreover, according to the estimation results of FMOLS and DOLS cointegration regressions, it was seen that the NPL ratio was positively related to CAR and the loan-deposit ratio was negatively related. This result shows that there is a long-term relationship between NPL ratio, which is an indicator of banks' credit quality, and loandeposit ratio, which is a structural liquidity indicator, and CAR.

Suggested Citation

  • Özgür Özel, 2024. "Factors Affecting Capital Adequacy: An Application for the Turkish Banking Sector," Journal of Finance Letters (Maliye ve Finans Yazıları), Maliye ve Finans Yazıları Yayıncılık Ltd. Şti., vol. 39(121), pages 147-174, April.
    • Handle: RePEc:acc:malfin:v:39:y:2024:i:121:p:147-174
    DOI: https://doi.org/10.33203/mfy.1356381
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    Keywords

    Turkish Banking Sector; Capital Adequacy Ratio; Cointegration; Dynamic Ordinary Least Squares Method (Dynamic OLS); Modified Ordinary Least Squares Method (Fully Modified OLS).;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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