Determinants of Bank Stability: A Financial Statement Analysis of Turkish Banks

Abstract

This paper attempts a financial statement analysis of Turkish banks and explores the determinants of bank stability, as proxied by non-performing loans ratio, using annual data on 27 Turkish banks for the years 2007-2015. We employ dynamic panel data estimation techniques by using the system GMM estimation techniques. Our results indicate that the significant determinants of NPLs that are able to explain the credit risk of Turkish banks include return on assets (ROA), loans to asset ratio, inefficiency index, non-interest income share and loan loss provisions share. We contribute to the literature by properly accounting for endogeneity with adequate specification and validation tests.

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