Dynamics of bank profitability: Evidence from Turkey

Abstract

This study examines whether the capital adequacy ratio, which is calculated with risk-weighted assets, explains the bank profitability in Turkey, and whether profitability dynamics vary for different bank sizes. This paper also aims to examine the effects of international trade between the EU-28 and Turkey on bank profitability. Our bank profitability measures are; return on assets, return on equity, and net interest margin. Our results show evidence of a positive relationship between capital adequacy ratio and bank profitability. In addition, we observe that profitability dynamics differ for different bank sizes. We also document that openness to trade between EU-28 and Turkey has a positive and significant effect on bank profitability in Turkey.