THE RELATIONSHIP OF SECTORAL CREDIT CONCENTRATION AND RETURN IN BANKING CREDITS

Abstract

All the financial market operations influence all the actors in the economy. Banks are the important institutions in the financial markets and especially in the bank-based economies like Turkey, banks are the systemic important institutions. The banks, their basic operations is crediting, is affected from the macro economics policies, and also influence them by all the choices between concentration and diversification to compose their credit portpolio, in other words, by their choices between risk and performance. They can lead to the financial frigality by increasing the credit risk in the banking sector by crediting intensively to any sector in which specialise for high return. The aim of this study is to consider whether or not each banks’ or many banks’ loan portfolio choices (herding) return as the banking sector. In this study, the correlation of the sectoral concentration in the Turkish banking and banking return is analysed by the ARDL (Autoregressive Distributed Lag Bound Test) method, in other word, the ARDL bound test approach by using quarterly data (ROA and ROE as return rate, Herfindahl-Hirschman Index –HHI- as sectoral credit concentration, the rate of equity and total risky assets of Turkish banking sector, the rate of credits and assets, the rate of interest income and average total assets, the rate of non-interest income and average total assets, growth rate and real exchange rate) between 2007-2018. As a result of this study, there is a high significant relationship between the sectoral concentration in the Turkish banking sector and return in these period. Moreover, the correlation of the return and interest income is positive and significant, non-interest income is negative and significant. It indicates that the banks operate as the agency and they return mainly from crediting.