Abstract:

This study evaluates the weaknesses and strengths of the Turkish banking sector by using the techniques of DuPont analysis and CAMELS rating from 2001 to 2017. The effects and results of the banking sector reconstruction program implemented after the 2001 financial crisis and Turkey’s attempt to become European Union member are also investigated and evaluated under the same time span. In general, due to financial recovery policies implemented after the 2001 economic crisis, the banking industry has shown improvements and has become stronger as the performance gap between the analyzed units have converged over time. Traditional ratio analyses are found to be consistent with advanced models. Human capital, managerial skills and organizational structure deliver high quality output, but it is also observed that a need for an adequate risk management department still continues as evidenced on skimping hypothesis of NPL’s. Deposit banks are clustered as state owned, privately owned and foreign banks. Foreign banks performance is the worst of all. State owned deposit banks in the Turkish banking sector are performing better than their competitors but this should not mean that crowding out foreign banks out of the system would increase overall performance. Turkish banks are observed to have a lower performance in managing asset quality and vulnerability to market risk than do foreign banks. In order to maintain a solid and sustainable system, successful policies must continue, especially in the areas of asset quality and liquidity management. Also, supervisory transparency should be increased, even if it may embrace negative effects on the financial actors.