Assessing the impact of non-performing loans on economic growth in Turkey

Abstract

The purpose of this study is to determine the effects of non-performing loans (NPL) in the Turkish banking sector on the economic growth. An econometric model regarding the factors affecting the economic growth was created. The present study has used the quarterly data between the years 1998Q1 and 2015Q3. Databases are provided by the Central Bank of the Republic of Turkey and Turkish Statistical Institute. Data analysis was performed with software package Eviews 8. The data analysis including the unit root test was conducted in the Augmented Dickey – Fuller (ADF) and Phillips – Perron (PP) methods and Granger causality test. In this study, unit root tests were carried out primarily in order to examine the stability of the series, and simple regression model was estimated as a result of the unit root tests. In the present study, the relationships were between variables in the determination of the model were estimated with ordinary least squares (OLS). In accordance with the results of the empirical analyses in Turkey, there is a causality relationship between non-performing loans and domestic credit volume of the Turkish banking sector. Granger causality tests show that these relationships are bivious. Non-Performing Loans, gross domestic product (GDP) at constant prices, public sector expenditure at constant prices (PS) and private sector expenditure at constant prices (PSE), domestic credit volume (CV), total loan interest income (I) are the most significant sub-items of the economic growth. In another respect, it is expected to have the causality relationships between NLP, GDP, PE, PSE, CV and I which are the sub-items of the economic growth.