International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

The Effect of Basel Criterias on Banking Profitability in Turkey: Analysis via Cointegration Method

New global financial regulations are implemented with respect to the developments in the financial system. A consideration of the place and significance of the Banking system globally and nationally that the importance of financial regulations regarding the system increases each day. In this respect Basel (Basel I, Basel II and Basel III criteria) reconciliation is conducted regarding the banking system. Especially to decrease the fragility of banks undertaking the role of financial mediators as a result of the global financial crisis in 2008, Basel II reconciliation has been expanded and BaselII criteria has been determined on 12.09.2010. Even though it is expected that Basel III reconciliation will be beneficial for the stability of the banking sector, it is expected that the long term profitability of banks will decrease in relation to the possible increase of their capital and liquidity. In this piece, Basel reconciliations are considered, its application in the Turkish banking sector is considered and by utilizing the data for 2002.Q4 and 2016Q.3, the effect of capital sufficiency ratio (CSR) of banks active in the Turkish Banking Sector via cointegration method determined by Basel reconciliation. As a result of the analysis in the long term an opposite relationship between loan risk, liquidity risk, CSR and bank profitability. Therefore, in Turkish banking sector, by applying Basel reconciliations financial and macroeconomic fragility of banks decrease however their profitability decreases. In this respect, it may be foreseen that against strong active and equity structure in face of low profitability rates, banks active in the Turkish banking sector are to compete in tougher conditions.

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