Volume 8, Issue 4, 19-38.

The Effect of Inflation and Interest Rate on Turkish Banking System’s Incomes

Ercan OZEN*, PhD

Department of Banking and Finance, School of Applied Sciences, Uşak University, Uşak, Turkey, Post Code (64200). Tel. (+90) 532 549 53 42 / (+90) 276 221 21 21 (7065), E-mail:  ercan.ozen@usak.edu.tr, eozentr@hotmail.com.

Metin TETIK, PhD

Department of International Logistics and Transportation, School of Applied Sciences, Uşak University, Uşak, Turkey, Post Code (64200).Tel. (+90) 276 221 21 21 (7081), E-mail: metin.tetik@usak.edu.tr.


The study aims to explore 1) to understand how low inflation and interest rates affect to Turkish banking system’s income.  2) To find out whether low profit margins of banking, said that contraction in public because of low inflation and low interest rate, compensated by commission income. Data set of the study consists 46 quarterly between 2002:1 and 2013:4. The main findings based on SVAR model impulse response analysis, it has been showed that an increase of political interest rate has negative effect on rate of assets (ROA) and hasn’t any statistically meaningful effect on rate of equity (ROE). Whereas, it has been showed that inflation doesn’t affect to ROA as statistically and affect ROE as statistically. Another finding of the study is that contribution of net interest income to profitability bigger than that of commission. This result means that the interest income is still the major profit element of banks.

JEL Classification: G21; E43; E52; E31.

Keywords: Finance; Banking; Inflation; Interest Rate; Commission; SVAR.

*Corresponding author.

Note: This study is revised and extended version of the proceeding titled as “Effects of Low Inflation and Low Inflation Rates on Main Incomes of Turkish Banking System: Interest Income or Commission?” and presented at 18th Financial Symposium held in Denizli / Turkey between 14th and 17th October 2014.


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