Examining the Relationship between Banking Sector Loans and Inflation in Turkey
Chapter from the book: Yürük, M. F. & Buğan, M. F. (eds.) 2023. Evolution of Financial Markets- III.

Ömer Fazıl Emek
Mardin Artuklu University

Synopsis

The efficiency and effectiveness of the bank credit allocation process depends on the existence of a well-functioning financial sector and macroeconomic stability. Otherwise, it becomes possible for the adverse economic developments to affect the financial sector directly or indirectly. It is highly likely that developing countries, which have not yet completed their financial development, will be more affected by these macroeconomic negativities. Inadequate investments in technology and infrastructure, individual and corporate dependence on bank loans, high budget and current account deficits, and persistent increases in exchange rates, inflation and interest rates are the main macroeconomic problems in developing countries. These are also important obstacles to economic stability. Inflation, in particular, is a major instability factor that eliminates predictability and makes the economic process uncertain. This situation adversely affects the relationship between the financial sector and real economic activity. As a matter of fact, the effect of inflation on bank loans is among the issues that continue to be discussed in the literature. In this context, the relationship between inflation, which has become chronic in Turkey for many years, and bank loans has aroused curiosity and various studies have been conducted. The aim of this study is to examine the long-run and causality relationship between bank loans and inflation rate in Turkey, which consists of quarterly data for the period 2014-2023. According to Johansen cointegration analysis, there is a long-run relationship between these variables. The findings from the Granger causality analysis indicate that there is unidirectional causality from the inflation rate to bank loans. It is understood that inflation, which is known to be one of the leading macroeconomic adversities in Turkey, affects banks' lending process in the long run as expected. In developing countries such as Turkey, the importance of banks, which comprise the majority of the financial sector, is an undeniable reality. The liquidity of bank credit depends on the elimination of economic instability such as inflation. In this respect, it should be emphasised that the fight against inflation should be continued strongly.

How to cite this book

Emek, Ö. F. (2023). Examining the Relationship between Banking Sector Loans and Inflation in Turkey. In: Yürük, M. F. & Buğan, M. F. (eds.), Evolution of Financial Markets- III. Özgür Publications. DOI: https://doi.org/10.58830/ozgur.pub147.c1236

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Published

October 21, 2023

DOI