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Are Capital Ratios Procyclical? Evidence from Turkish Banking Data

Author

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  • Neslihan Topbaş Turguttopbas

    (Management Faculty, Atılım Universitesi, Ankara, TURKEY)

Abstract

This paper contributes to the literature by providing recent empirical evidence about the positioning of the capital adequacy ratios (Basel II capital adequacy ratio and leverage ratio as proposed by Basel III) of Turkish banks and the business cycle. As in many emerging countries, the Turkish real sector is highly dependent on the banking loans for financing, and consequently, the macroeconomic system is vulnerable to the supply of bank loans. The results reveal that the Basel II capital adequacy ratio of Turkish banks is procyclical at a statistical significance in normal and crisis times. The results of cyclicality tests of the leverage ratio are mixed: if nominal GDP growth is taken as a business cycle indicator, it is procyclical; however, the credit-to-GDP gap signals countercyclical leverage ratios in normal times. In crisis times, the leverage ratio of the Turkish banking system is determined to be countercyclical.

Suggested Citation

  • Neslihan Topbaş Turguttopbas, 2018. "Are Capital Ratios Procyclical? Evidence from Turkish Banking Data," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 7(3), pages 159-180.
    • Handle: RePEc:cbk:journl:v:7:y:2018:i:3:p:159-180
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol7no3-9.pdf
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    Cited by:

    1. Enkhzaya Demid, 2021. "Heterogeneity in the Relationship Between NPLs and Real Economy: Evidence from the Mongolian Banking System," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(2), pages 133-155.
    2. Konstantinos Drakos & Ioannis Malandrakis, 2021. "Global Versus Non-Global Banks: A Capital Ratios-Based Analysis," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(2), pages 5-22.

    More about this item

    Keywords

    Capital; capital adequacy ratio; leverage rate.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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