Turkish banking industry: A CAMELS analysis

Abstract

In this paper, the Turkish banking system is assessed using a CAMELS approach with a focus on recent financial developments. The analysis shows that the return on assets and return on equity of the Turkish banking industry are relatively at a satisfactory level. An increase in the profitability would strengthen capital and a slowdown in the loan growth rate limits the risk-weighted asset growth. The Turkish banking system continues to remain resilient to interest rate shocks and maintains its resilience to exchange rate risk. Both opportunities and challenges of Turkey’s financial industry are also discussed in this paper. As an opportunity, there is ample room for the development and diversification of financial markets, institutions, and instruments. However, relying mostly on the banking sector, increasing the credit-to-deposits ratio, tightening global liquidity conditions, and depending on foreign capital inflows are regarded as important challenges for the Turkish financial sector.