Determination of influential financial factors on non-performing loans: evidence from Turkey

Abstract

Turkish banking sector (TBS) has been faced with a growth of the rate of non-performing loans (NPL) over recent years. The level of NPL plays a restricting role of credit providing capacity of banks. So, necessary financing for economic growth cannot be provided and hence a variety of uncertainties and deteriorations in macro economy have been seen in Turkey. In this context, determination of factors affecting of NPL increasing is required to keep under control. Therefore, this study presents the critical factors on NPL by using 14 variables, quarterly data for the period of 2003Q1-2019Q2, and the multivariate adaptive regression splines (MARS) method. The results provide the evidence that the commercial credit interest rates, provisions, risk-weighted assets (RWA), credits, legal equity, net profits, and EUR/TL are the most influential factors on NPL, respectively.