Influence of Capıtal Buffer in Turkish Banking System

This paper aim to shed light the determinants of capital buffer in the Turkish Banking system solicitous about to estimate the cyclicality of capital buffer using a panel data of 87 banks during the period 1988-2009. Major source of data for analysis has been used of reports published by Banks association of Turkey. [1] Two-step Generalized Method of Moments is implemented by using Arellano–Bond linear dynamic panel-data estimator. The study is concentrated on: i) Economic growth, ii) Aasset size, iii) Return on equity (ROE) and iv) Non-performing loans (NPL) as the determinants of capital buffer. It is analyzed and found that commercial banks including the banks under the control of Savings Deposit & Insurance Fund, undulate procyclically, while commercial banks excluding the banks under Savings Deposit and Insurance Fund, penchant to countercyclically. This analysis is noteworthy since it is parallel to (BASEL III), while structuring a countercyclical capital framework is imperative. In this study, we explore capital-buffering approach as one of the precautionary measures of Turkish banking sector during the recent global financial crisis. This study has been carried out with the gathering data from 1997 to 2009 and examines insights about the Turkish banking sector’s capital buffer utilization as a precautionary measure before and during the crisis era. Following up 1st classification by bank types, the findings show that development and investment banks prefer larger capital buffer. State-owned deposit banks are the ones with negative capital buffers in average terms. When we exclude the banks converted to the Savings Deposit Insurance Fund, capital buffer of the banking system of Turkey was strong above those of the European banking sector. A conclusion reached regarding the cyclical behavior of capital buffers in Turkish banking system, shows that privately-owned deposit banks & large banks fluctuate pro-cyclically. Development and investment banks are found to be pro-cyclical in their movement, except the crisis in the years of 2000 and 2001. Likewise, total sample, excluding banks under the control of the Savings Deposit Insurance Fund, is found to be pro-cyclical in its position, except years 2000 and 2001. Small and medium-sized banks move pro-cyclically except pre-crisis of 1999 crisis of 2000 and 2001.Only banks under the control of the Savings Deposit Insurance Fund are analyzed to move counter-cyclically. Eventually, the total sample moves pro-cyclically except pre-crisis 1999 and crisis of 2000 & 2001. It has been investigated with the provided evidence that the Turkish banking sector utilize capital buffer as a precautionary measure against the financial crisis. In the aftermath of the recent financial crisis, the particular interloper between banks’ capital buffers and risk took central place and policy makers promoted a more rupture global banking system. The growing reputation of Islamic banking as a viable alternative-banking model insinuate the need to investigate the overall susceptibilities of Islamic banks’ capital buffers with unique risks release from their operating environments. We investigate this chapter over the period 2005-2009 in the 18 countries where Islamic and conventional commercial banks co-exist. We implement a panel model with using dynamic Generalized Methods of Moments (GMM) on a data set comprising 128 commercial banks of which 44 are Islamic commercial banks. The search for alternative prudential regulation over and above risk based capital guidelines has also moved in line with the attention of policy makers towards investigating the disciplining effects of banks’ charter values on capital buffers. We measure this issue for Islamic banks, in order to find whether the relationship varies as a function of the size of the charter as implied by literature. We conduct the cross-section threshold approach studied by Hansen (2000) for 101 publicly listed commercial banks in the same countries. In extreme of our knowledge, this study is the first stair of destination where we examine empirically the aforementioned issues for Islamic banks. This study is anticipated to depict shortcomings in capital adequacy guidelines with raising distinct policy implications regard to the regulation and supervision of Islamic banks in countries where both bank types co-exist. [1] The Arellano-Bond (1991) estimator is a GMM estimator for linear dynamic panel-data models that uses lagged levels of the endogenous variables as well as first differences of the exogenous variables as instruments. It removes the panel-specific heterogeneity by first-differencing the regression equation.