Determining the relationship between non-performing loans, economic growth, and asset size: An application in Turkish Participation Banking Sector

Abstract

Participation Banks are an alternative financial institution that contributes to the development and deepening of the financial system in the Turkish Banking Sector. In this study, the relationship between participation banks, non-performing loans, gross domestic product, and asset size in the period 2005: Q1-2018: Q2 was investigated by using the co-integration, Granger causality tests and regression analysis methods. The results of the Granger causality test show that there is a one-way causality relationship between non-performing loans to gross domestic product and the gross domestic product to asset size, but there is a double causality relationship between non-performing loans and asset size. In the results of empirical analysis, a statistically significant relationship was found between both gross domestic product and asset size, and non-performing loans. In this context, it is determined that there is a negative relationship between non-performing loans and gross domestic product. On the other hand, it was determined that the asset size of the participation banking sector increased and the non-performing loans were affected in the same direction.