Volume 7, Issue 3, 66-80.

Credit Crunch in the Environment of the Global Crisis: The Case of Turkey

Umit BULUT*

Department of Economics, Ahi Evran University, Kırşehir, TURKEY. Tel: +90 386 280 5016; Fax: +90 386 280 4079. E-mail: ubulut@ahievran.edu.tr.

Ekrem ERDEM

Department of Economics, Erciyes University, Kayseri, TURKEY. Tel: +90 352 437 4901 (30451); Fax: +90 352 437 5239. E-mail: ekremerdem@erciyes.edu.tr.

ABSTRACT

The main purpose of this study is to investigate whether the decrease in real sector loans of the Turkish banking sector caused by the global crisis is primarily a supply-side or demand-side case. In addition, this study attempts to elucidate the variables affecting the real sector loan supply of banks and the loan demand of real sector enterprises in Turkey. Monthly data from January 2005 to December 2009 are used as the period and the ordinary least squares and the cointegration analysis are employed as the methods for the application. The results indicate that the real sector loan supply of banks is positively related to real lending capacities of banks, to real industrial production, and to nominal interest rates on loans and is negatively related to the stock market index in Turkey. Additionally, the loan demand of real sector enterprises is positively related to real industrial production and is negatively related to industrial production gap and to nominal interest rates on loans. Moreover, this study concludes that the decrease in real sector loans of the Turkish banking sector is both supply-side and demand-side. The contraction of economic activity arising from the global crisis and worsened expectations reduced both the loan supply and the loan demand in Turkey. If “credit crunch” is defined as a situation in which loan supply is lower than loan demand during a time of decreasing loans, it can be said that the decrease in real sector loans in the country indicates a credit crunch for some months of the observed period.

JEL Classification: C30; E51; G21.

Key Words: Credit crunch; real sector loans of Turkish banking sector, co-integration analysis.

*Corresponding author.

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