Bank-Specific Factors Affecting Profitability of Deposit Banks in Türkiye: Panel Data Analysis (2002-2023)

Abstract

Purpose – This study aims to examine the bank-specific factors affecting the profitability of deposit banks operating in Turkey. Three different profitability indicators, namely return on assets, return on equity and return on paid-in capital, were used as dependent variables. The explanatory variables are grouped under capital adequacy, balance sheet structure, asset quality, liquidity, and income-expense structure.

Design/methodology/approach – The study uses 22 years of data (2002-2023) from 27 deposit banks. Within the framework of panel data analysis, fixed effects models were estimated using Driscoll-Kraay standard errors.

Findings – The findings indicate that there is a clear hierarchy of influence among the determinants of bank profitability. In particular, the loans/total assets ratio, representing asset quality, stands out as a strong and consistent determinant across all models, while the high impact of non-interest income reveals the critical role of income diversification for profitability. The significant effect of interest income also shows that traditional banking activities retain their importance. In contrast, the effects of capital adequacy, balance sheet structure, and liquidity variables were found to be relatively limited, playing a more supportive role.

Discussion – The analysis findings show that strengthening asset quality, diversifying income sources, and implementing effective risk management practices are important elements in increasing bank profitability. Accordingly, it is recommended that banks improve their credit allocation and monitoring processes, direct their assets to more efficient areas, and diversify their income structures, particularly by developing non-interest income sources. Nevertheless, although the effects of capital adequacy, balance sheet structure, and liquidity indicators on profitability appear relatively limited, effective management of these elements remains important for supporting sustainable bank profitability and financial resilience. In this context, the study offers important policy and practical implications for regulatory authorities, practitioners, and bank managers aiming to enhance financial performance in the banking sector.