 Foreign Currency Lending and Banking System Stability: New Evidence from TurkeyEmre Ozsoz, Erick W. Rengifo and Ali Kutan Central Bank Review, 2015, vol. 15, issue 2, 1-29 Abstract: This paper studies the drivers of foreign currency lending by Turkish banks along with its consequences for the banking system in particular and for the economy in general for the period between 2003 and 2009. Our sample ends in 2009 because foreign currency lending to households in Turkey is banned starting in the second quarter of 2009. We highlight possible risks to the Turkish banking system as a result of the system's heavy exposure to exchange rate and default risks. Our findings show that deposit dollarization seems to be the most important driver of loan dollarization in the case of Turkey. We also find evidence that larger banks in general tend to lend more in foreign currency. There is no evidence that bank cash holdings and their balances with the Central Bank affect bank lending behavior. We also evaluate whether the decision taken by the regulatory authorities in Turkey in 2009 to ban foreign currency lending to households had merits. Keywords: Dollarization; Foreign currency lending; Banking system stability (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:tcb:cebare:v:15:y:2015:i:2:p:1-29 Access Statistics for this article More articles in Central Bank Review from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC. |
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