The sensitivity of loan growth and the existence of bank lending channel during the new regulatory environment in Turkey

Abstract

Theoretical framework for monetary transmission mechanism and hence for bank lending channel provides straightforward impacts of monetary policy on aggregate output, however there is a problem of identification for these impacts with aggregate data. Using a two-staged approach, the thesis studies the loan growth sensitivities of banks in the new regulatory system in Turkey and tries to identify a relationship between loan growth sensitivity and monetary tightening. There are six alternative sensitivities tested in the thesis: (1) Liquidity sensitivity of bank loan growth, (2) Income sensitivity of bank loan growth, (3) Liquidity sensitivity of bank loan growth with ownership type of banks controlled, (4) Liquidity sensitivity of large banks loan growth, (5) Liquidity sensitivity of small banks loan growth. (6) Liquidity sensitivity of bank loan growth with foreign affiliation of banks controlled. Results confirm that there exists a positive relationship between liquidity sensitivity of loan growth of Turkish banks and monetary policy shocks. Results also show that small banks are more liquidity dependent during contradictionary monetary policy periods than large banks. Besides the results parallel to empirical findings in the literature, characteristics of Turkish banking sector are included in the discussion such as the influence of BRSA on banks and the impacts of its regulations. Robustness of the tests are checked with additional econometric models. Hence, the findings suggest that there are evidences on bank lending channel in Turkey for the period 1998-2009.