Defining Influential Factors of Capital Adequacy Ratio: An Examination upon Turkish Banking Sector (2006/Q1-2019/Q1)

Abstract

Capital adequacy ratio (CAR) of the Turkish Banking Sector decreased dramatically from 30.9% in 2003 to 17.1% as of 2019 May. This figure shows that although TBS has still relatively high CAR compared to many countries, unfortunately there is a decreasing trend. A downward trend in CAR constitutes risks due to the limiting of providing credits. Therefore, the level of CAR has importance for making a positive contribution to sustainable economic growth. So, influential factors of CAR should be determined first. In this context, Multivariate Adaptive Regression Splines (MARS) method, 14 explanatory variables, and quarterly data are used for the period of 2006/Q1-2019/Q1. It is determined that credits/total assets ratio, legal equities, risk weighted assets, nonperforming loans (NPL), NPL/total credits ratio, and credit/deposit ratio are influential factors on CAR in Turkey.

Keywords: Banking Sector; CAR; Influential Factors; MARS; Turkey

JEL Classification: E27, E44, G21, G28, G29, K23, Y1