Evaluation of the Relationship between Liquidity and Profitability in the Turkish Banking Sector Using Panel Data Analysis Method

Muharrem Agirtmis and Ebubekir Mollaahmetoglu

Journal of BRSA Banking and Financial Markets, 2024, vol. 18, issue 2, 135-149

Abstract: Liquidity risk and its management have recently become significant topics of focus for both the banking sector and regulatory authorities. The 2008 financial crisis and following this crisis, liquidity in banking has been of critical importance. In this context, the possible trade-off between liquidity risk based on prudence and profitability based on risk is an important research topic, for the sustainability of banking activities. In this study, the relationship between liquidity indicators and profitability indicators is evaluated using the panel data method. The models utilize quarterly data from the period 2010-2023 and include 22 deposit banks and 6 participation banks in the Turkish banking sector. The models, which separately evaluate the sector, deposit banks and participation banks, generally indicate a negative relationship between profitability indicators and the liquidity coverage ratio introduced by recent regulations. Conversely, it is concluded that there is a positive relationship between profitability indicators and the liquid asset/total asset ratio, which is a relatively old liquidity indicator that is widely used in the literature.

Keywords: Liquidity; liquidity risk; profitability; banking; panel data analysis. (search for similar items in EconPapers)
JEL-codes: C33 G21 G30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bdd:journl:v:18:y:2024:i:2:p:135-149

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