Macro Stress Testing the Credit Risk of Conventional and Participation Banks in Turkey: A Nonparametric Quantile Regression Approach

Aydemir R., Atik Z., Güloğlu B.

Eastern European Economics, 2023 (SSCI) identifier

  • Publication Type: Article / Article
  • Publication Date: 2023
  • Doi Number: 10.1080/00128775.2023.2253226
  • Journal Name: Eastern European Economics
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, Periodicals Index Online, ABI/INFORM, American Bibliography of Slavic & Eastern European Studies (ABSEES), Business Source Elite, Business Source Premier, EconLit, Geobase, PAIS International, Public Affairs Index
  • Keywords: Macro stress resting, non-performing loans, nonparametric quantile regression, participation banking, scenario analysis, Turkish banks
  • Istanbul Technical University Affiliated: Yes

Abstract

This paper applies a novel time series-based additive nonparametric quantile regression technique to stress test the credit risk of conventional and participation banks in Turkey. We particularly examine the effects of the exchange rate, unemployment rate, the policy interest rate, and the public debt-to-GDP ratio on the non-performing loan ratio (NPL) of Turkish banks at distinct quantile levels. We find that their effects are heterogeneous and significantly vary across different types of banks and quantiles. Overall, participation banks are more vulnerable to negative scenarios associated with the exchange rate, unemployment rate, and public debt ratio than conventional banks.