Determinants of capital adequacy ratio in Turkish Banks: A panel data analysis

Abstract

The purpose of this study is to investigate the determinants of Turkish banks' capital adequacy ratio and its effects on financial positions of banks covered by the study. Data are obtained from banks' annual reports for the period 2006 - 2010. Panel data methodology is used in this study and analyzes relationships between independent variables; bank size (SIZE), deposits (DEP), loans (LOA), loan loss reserve (LLR), liquidity (LIQ), profitability (ROA and ROE), net interest margin (NIM) and leverage (LEV) and a dependent variable which is capital adequacy ratio (CAR). The results of the paper indicate that LOA, return on equity and LEV have a negative effect on CAR, while LLR and return on assets positively influence CAR. On the other hand, SIZE, DEP, LIQ and NIM do not appear to have any significant effect on CAR.   Key words: Capital adequacy ratio, Turkish banks, panel data analysis.