Risk management and capital adequacy in Turkish participation and conventional banks: A comparative stress testing analysis

Citation data:

Borsa Istanbul Review, ISSN: 2214-8450, Vol: 16, Issue: 2, Page: 72-81

Publication Year:
2016
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Repository URL:
https://scholarworks.merrimack.edu/fin_facpub/5; https://scholarworks.merrimack.edu/cgi/viewcontent.cgi?article=1004&context=fin_facpub
DOI:
10.1016/j.bir.2016.04.001
Author(s):
Hassan, M.Kabir; Unsal, Omer; Tamer, Hikmet Emre
Publisher(s):
Elsevier BV; Merrimack ScholarWorks
Tags:
Economics, Econometrics and Finance; Islamic banks; Basel I; Credit risk; Market risk; Operational risk; Stress testing; Scenario analysis; Capital adequacy; Turkey; Finance; Finance and Financial Management
article description
In this study, we investigate changes in banks' capital adequacy ratio (CAR) under different stress scenarios and examine the results by comparing conventional banks to participation banks in Turkey. Our results report that the capital adequacy ratio of the banks declines substantially given the stress scenarios. We find that participation banks in Turkey suffer more in declined capital adequacy ratio compared to conventional banks. Our findings reveal that participation banks in Turkey are more sensitive to sudden changes in exchange rates and increased non-performing loans. However, this sensitivity is in regards to capital adequacy, not profit. Overall, our study shows the effect of stress in the banking sector by contributing to the existing literature.