The Relationship between Credit Interest, Credit Volume and Net Profit in the Turkish Banking Sector

Abstract

In the last two decades, foreign capital investments in the financial sector of emerging markets have increased tremendously. Foreign direct investment is now important for every country. With the development of globalization, foreign capital investments have started to take place more in the financial sector. Turkey, which is among the developing countries, is among the preferred countries for foreign direct investments. The regulations that took place after the crises in the banking sector in 2000 and 2001 and the growth trend in the world economies made the banking sector attractive. It cannot be denied that foreign investments have positive contributions to the current account deficit, employment, gross domestic product, and raising quality standards with competition rules. In addition, the indirect effect of foreign capital is a larger increase in the deposit and loan volume of the banking system due to the increase in production, and an increase in trade volume and profit. The secondary effects of foreign capital investments on the sector are that it creates a multiplier effect on service standards, product variety and profit margin together with developing market conditions. This study describes the tests and analyzes on the effect of loan interest net profit and volume of the Turkish banking sector on the net profit of public and private banks. The main purpose of this study is to evaluate the effect of non-performing loans on banks' profits. Since profitability is a very broad concept, models covering the return on assets ratio and return on equity ratio, which are widely used in studies in the literature, have been established. Unlike other studies, the effect of non-performing loans on the net profit margin is also examined. The study is carried out on banks with at least 100 branches operating in Turkey. In practice, the relationship between the net profit margin of non-performing loans, return on assets and return on equity is analyzed using the data for the period 2012-2021.