Title: Determinants of non-performing loans and banking costs during the 1999-2001 Turkish banking crisis

Authors: Omar Masood, Chris Stewart

Addresses: Business School, University of East London, Docklands Campus, University Way, London E16 2RD, UK. ' London Metropolitan Business School, London Metropolitan University, London, UK

Abstract: Using original survey data collected by the authors we investigate the determinants of non-performing loans and costs in the Turkish banking sector during the crisis period of 1999-2001. Employing ordered choice models, we find that variables measuring unnecessary government intervention and loans given to related companies significantly influenced both non-performing bank loans and the overall cost of the crisis. Poor credit risk assessment and a weak capital base of Turkish commercial banks have also led to a high percentage of non performing bank loans, whereas improper accounting practices, under capitalisation of Turkish banks, as well as weak regulation/supervision have been identified as variables which added to the high cost of the crisis.

Keywords: banking crises; currency crisis; looting; ordered choice models; non-performing loans; Turkey; banking costs; government intervention; bank loans; credit risk assessment; capital base; accounting practices; financial regulation; financial supervision; financial risk.

DOI: 10.1504/IJRAM.2009.022195

International Journal of Risk Assessment and Management, 2009 Vol.11 No.1/2, pp.20 - 38

Published online: 22 Dec 2008 *

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