Risk Management and Capital Adequacy in Turkish Participation and Conventional Banks: A Comparative Stress Testing Analysis

Borsa Istanbul Review (2016), doi: 10.1016/j.bir.2016.04.001

30 Pages Posted: 1 Nov 2018

See all articles by M. Kabir Hassan

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Omer Unsal

Merrimack College - Girard School of Business - Department of Accounting and Finance

Date Written: April 2, 2016

Abstract

In this study, we investigate changes in banks’ capital adequacy ratio (CAR) under different stress scenarios and examine the results by comparing conventional banks to participation banks in Turkey. Our results report that the capital adequacy ratio of the banks declines substantially given the stress scenarios. We find that participation banks in Turkey suffer more in declined capital adequacy ratio compared to conventional banks. Our findings reveal that participation banks in Turkey are more sensitive to sudden changes in exchange rates and increased non performing loans. However, this sensitivity is in regards to capital adequacy, not profit. Overall, our study shows the effect of stress in the banking sector by contributing to the existing literature.

Keywords: Islamic Banks, Basel I, Credit Risk, Market Risk, Operational Risk, Stress Testing, Scenario Analysis, Basel I, Capital Adequacy, Turkey

JEL Classification: G21, G28, P43, Z12

Suggested Citation

Hassan, M. Kabir and Unsal, Omer, Risk Management and Capital Adequacy in Turkish Participation and Conventional Banks: A Comparative Stress Testing Analysis (April 2, 2016). Borsa Istanbul Review (2016), doi: 10.1016/j.bir.2016.04.001, Available at SSRN: https://ssrn.com/abstract=3263394 or http://dx.doi.org/10.2139/ssrn.3263394

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Omer Unsal

Merrimack College - Girard School of Business - Department of Accounting and Finance ( email )

315 Turnpike St
North Andover, MA 01845
United States

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