ANALYSIS OF THE RELATIONSHIP BETWEEN LIQUIDITY RISK AND PROFITABILITY IN BANKING: AN APPLICATION IN THE TURKISH BANKING SECTOR

Şakir Sakarya and Fatih Karakaş
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Şakir Sakarya: BALIKESIR UNIVERSITY
Fatih Karakaş: BALIKESIR UNIVERSITY

Ekonomi Maliye Isletme Dergisi, 2026, vol. 9, issue 1, 95-112

Abstract: This study examines the impact of liquidity risk arising from maturity mismatch on bank profitability in the Turkish banking sector. The research employs panel data analysis using annual data from 19 commercial banks operating in Turkey during the 2003-2023 period. The study analyses the effects of capital adequacy, balance sheet structure, asset quality, and liquidity variables on three different profitability measures (return on assets, return on equity, and pre-tax return on assets) using fixed effects model with Driscoll-Kraay estimator. The most significant finding of the research is that the net liquidity gap up to 3 months (maturity mismatch) has a strong and positive effect on bank profitability. The results show that as banks' liquidity risk increases, their profitability also increases. Additionally, it was found that capital adequacy increases profitability, while non-performing loans negatively affect profitability. The findings reveal that the maturity transformation function plays a critical role in the profitability of Turkish banks.

Keywords: Turkish Banks; Risk Management; Liquidity Risk; Maturity Mismatch; Profitability. (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:gnx:emid43:2026-9-1-1700791

DOI: 10.46737/emid.1700791

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