Profitability determinants in Turkish banking: comparing Islamic and conventional banks under inflation and bond rate effects

Hasan Kazak, Ahmet Tayfur Akcan, Cuneyt Kilic and Abdullah Kiliçarslan

Journal of Financial Regulation and Compliance, 2025, vol. 33, issue 5, 726-742

Abstract: PurposeThis study aims to compare the effects of exogenous factors, particularly inflation and bond interest rates, on the profitability of Islamic (participation) and conventional banks in Türkiye.Design/methodology/approachThe Fourier function-enhanced Johansen cointegration test was applied to data covering the period 2005/Q1–2023/Q4. The stationarity levels of the variables were determined using the Zivot–Andrews unit root test, followed by a cointegration test, and long-run coefficient estimates were evaluated.FindingsThe results indicate that inflation positively affects bank profitability in both Islamic and conventional banking sectors, whereas bond interest rates have a negative impact. No significant difference was observed between the two banking models in terms of these effects. Furthermore, contrary to existing literature suggesting a positive relationship between bond interest rates and bank profitability, this study provides empirical evidence of a negative long-run impact.Originality/valueThis study contributes to the literature by demonstrating the negative effect of bond interest rates on bank profitability, challenging conventional claims. In addition, it highlights the similar sensitivities of Islamic and conventional banks to macroeconomic factors, providing valuable insights for policymakers. The findings have significant implications for both the Turkish banking sector and the global financial system.

Keywords: Banking sector; Islamic banking; Consumer price index; Bond interest rates; Fourier Johansen cointegration test (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-01-2025-0016

DOI: 10.1108/JFRC-01-2025-0016

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