Abstract:

Purpose- The purpose of this study is to determine the effect of income diversification consisting of interest income and non-interest income of banks, which are the segment that performs the financial intermediation function most effectively in Turkey, on the growth in the banking sector. Methodology- The scope of the study is the deposit, participation and investment / development banks operating in Turkey. The data set consists of monthly data of banks for the period 2003-2019. As the dependent variable, the asset sizes of the banks, and as the independent variables, interest incomes and non-interest incomes were used. Since there is a time dimension in the data set, time series analysis was preferred as the methodology. Since the effect and relationship level of the variables subject to the study will provide us with significant findings, lag effect and impulse response analysis within the scope of the VAR Model and Granger causality test were applied as the methodology, which will reveal the relationship of the variables with each other. Findings- The analysis reveals that according to the impulse-response analysis of the created VAR Model, it was observed that all variables moved significantly and statically and returned back to the initial value or tended to return to the initial value until the tenth period against shocks. According to the results of the Granger causality analysis, it was seen that there is a one-way Granger causality relationship between bank asset growth on interest income and non-interest income, and a bi-directional Granger causality relationship between interest income and non-interest income. Conclusion- The model created and the level of interaction of the variables with each other give an idea about the effect of income diversification on the growth in the Turkish Banking Sector.

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