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The Place of Non-performing Loans in the Turkish Banking Sector
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The3rdPlace Non-performing in and theEntrepreneurship Turkish Banking Sector World of Conference on Technology,Loans Innovation (WOCTINE) 3rd World Conference on Technology, Innovation and Entrepreneurship (WOCTINE) a b Entrepreneurship 3rd World Conference Technology, Innovation and MustafaonYurttadur , Ender Celiktas , Ebru Celiktas c (WOCTINE)
Bahçelievler, İstanbul 34000,Türkiye The Place of Non-performing Loans in the Turkish Banking Sector The Non-performing Loans in the Turkish Banking Banking Sector World of Conference on Technology, Innovation and Entrepreneurship (WOCTINE) Beykent, Beylikdüzü.İstanbul 34000, Türkiye The3rdPlace Place of Non-performing Loans in the Turkish Sector a b c Beykent,beykikdüzü, İstanbul 34000, Türkiye Mustafa Yurttadur , Ender Celiktas , Ebru Celiktas Mustafa Yurttaduraa, Ender Celiktasbb, Ebru Celiktas cc Bahçelievler, İstanbul 34000,Türkiye Mustafa Yurttadur , Ender Celiktas , Ebru CeliktasBanking Sector Bahçelievler, İstanbul 34000,Türkiye The Place of Non-performing Loans in the Turkish Beykent, Beylikdüzü.İstanbul 34000, Türkiye Bahçelievler, İstanbul 34000,Türkiye a
b
c
Abstract
a a b a b c Beykent, Beylikdüzü.İstanbul Beykent,beykikdüzü, İstanbul cb
34000, Türkiye
34000,bTürkiye a Beykent, Beylikdüzü.İstanbul 34000, Türkiye Türkiye Mustafa Yurttadur , Enderİstanbul Celiktas , Ebru Celiktas c Beykent,beykikdüzü, 34000,
Beykent,beykikdüzü, İstanbul 34000, Türkiye a Bahçelievler, İstanbul 34000,Türkiye Beykent, Beylikdüzü.İstanbul 34000, Türkiye In the banking sector, the size of loans and c their problems are of great importance in all periods. The share of nonperforming Beykent,beykikdüzü, İstanbul 34000, Türkiye c
b
Abstract loans in total loans has a strong influence on the asset quality of banks, the extent to which the real sector impact is affected, the Abstract extent to which it affects profitability and how it contributes to capital adequacy. Abstract In the banking sector, the size of loans problems arethe of greatand importance periods. The share of nonperforming The higher the rate of problematic loansand for atheir bank, the lower the lower in theall Therefore, a credit policy in order In the banking sector, the size of loans and their problems are of risk great importance in allrisk. periods. The share of nonperforming loans in total loans has a strong influence on the asset quality of banks, the extent to which the real sector impact istheir affected, the to reduce the share of troubled loan rates in total loans within the Turkish banking sector will be a factor to increase financial In the banking sector, the size of loans and their problems are of great importance in all periods. The share of nonperforming Abstract loans in total loans has a strong influence on the asset quality of banks, the extent to which the real sector impact is affected, the extent to total which it affects profitability and how it contributes to capital adequacy. strength. loans in loans has a strong influence on the asset quality of banks, the extent to which the real sector impact is affected, the extent to which it affects profitability and how it contributes to capital adequacy. Thethis higher the rate of problematic loans for bank, the lower the risk and the lower the risk. Therefore, a credit policy in order study, definition andof scope of empirically problematic will belower discussed inperiods. detail. Then, effects of the nonextent tohigher which itthe affects and how itaatheir contributes to capital adequacy. In the banking sector, the size loans and problems arethe ofloans great importance in The share of nonperforming The the rate ofprofitability problematic loans for bank, the lower risk and the theallrisk. Therefore, athe credit policy in order to reduce theloans share of troubled loan rates inonfor total loans within the Turkish banking sector will beofTherefore, areal factor to aincrease their financial performing on the banking sector will be presented. These headings include the effects nonperforming loans on capital The higher the rate of problematic loans a bank, the lower the risk and the lower the risk. credit policy in order loans in total loans has a strong influence the asset quality of banks, the extent to which the sector impact is affected, the to reduce the share of troubled loan rates in total loans within the Turkish banking sector will be a factor to increase their financial strength. adequacy, their effects on the real sector, their impact on asset quality and their impact on profitability. It is seen that the banks with to reduce the share of troubled loan rates in total loans within the Turkish banking sector will be a factor to increase their financial extent to which it affects profitability and how it contributes to capital adequacy. strength. In this study, the definition and scope of empirically problematic loans will be discussed in detail. Then, the effects of the nonhighIn rate of loans have asset quality duethe to lower the inability collect the loans, it isThen, seenathe that they are directed strength. The higher thethe rate ofdisrupted problematic loans a bank, the loans risktoand the the risk. Therefore, credit policy in order this study, definition and the scope of for empirically problematic will belower discussed inand detail. effects of the nonperforming loans on the banking sector will be presented. These headings include the effects of nonperforming loans on capital towards into a negative thought the bankswithin against real sector. The height rateThen, also negatively affects the In thisentering study, the and scope ofintotal empirically problematic loans will be discussed inbethe detail. the effects of the nonto reduce the share troubled loan rates will in loans thethe Turkish banking sector willof factor to increase their performing loans onofdefinition the banking sector be presented. These headings include the effects ofa nonperforming loans onfinancial capital adequacy, their effects on banking thebanks real sector, their impact on asset quality and their impactthe oneffects profitability. It is seen thatloans the banks with capital adequacy of Turkish and their profitability. performing loans on the sector will be presented. These headings include of nonperforming on capital strength. adequacy, their effects on the real sector, their impact on asset quality and their impact on profitability. It is seen that the banks with high rate of loans have disrupted the asset quality due to the inability totheir collect the loans, and it isItseen thateffects they are directed adequacy, their effects ondisrupted the real their impactdue on problematic asset andto impact profitability. is seen theare banks with Inrate this of study, thehave definition andsector, scope of empirically loans will be discussed inand detail. the of the nonhigh loans the asset quality to thequality inability collect theon loans, it isThen, seen thatthat they directed towards entering into a negative thought in the banks against the real sector. The height of the rate also negatively affects the Keywords: Banking, Turkish Banking Sector, Non-Performing Loans high rate of loans have disrupted the asset quality due to the inability to collect the loans, and it is seen that they are performing loans into on the banking thought sector will be presented. These include effects of nonperforming loans affects ondirected capital towards entering a negative in the banks against theheadings real sector. The the height of the rate also negatively the capital adequacy of Turkish banks and their profitability. towards entering into a negative thought in the banks against the real sector. The height of the rate also negatively affects the adequacy, their effects on the real sector, their impact on asset quality and their impact on profitability. It is seen that the banks with capital adequacy of Turkish banks and their profitability. 1. Introductıon capital adequacy Turkish banks and high rate of loansofhave disrupted the their asset profitability. quality due to the inability to collect the loans, and it is seen that they are directed © 2019 The Authors. Published by Elsevier B.V.banks againstLoans Keywords: Banking, Banking Sector, Non-Performing sector. The height of the rate also negatively affects the towards entering intoTurkish a negative thought in the the real Keywords: Banking, Turkish Banking Non-Performing Loans the 3rd World Conference on Technology, Innovation and Peer-review under responsibility ofSector, the scientific committee Alladequacy theBanking, credits that arebanks given theprofitability. non-payment risk ofofprincipal and interest payments of credits can be called Keywords: Turkish Banking Sector, Non-Performing Loans capital of Turkish andfor their Entrepreneurship 1. Introductıon loans. ‘’Credits’’ become prominent as a crucial economic instrument for actualizing investments in non-performing
1. Introductıon global world economy andBanking financeSector, sector.Non-Performing Providing loans at required levels is about the continuity of assets and cash 1. Introductıon Keywords: Banking, Turkish Loans the credits that are given for the non-payment risk of principal and interest payments of credits can be causes called flowAll in banks at a reliable level. When the banks experience a problem repayment of credit, this trouble All the credits that are given for the non-payment risk of principal andininterest payments of credits can be called non-performing loans. ‘’Credits’’ become prominent as a crucial economic instrument for actualizing investments in serious socioeconomic problems by spreading into other sector and markets within the country. All the credits that are given for the non-payment risk of principal and interest payments of credits can be called 1. Introductıon loans. ‘’Credits’’ become prominent as a crucial economic instrument for actualizing investments non-performing in global world economy and financebecome sector. Providing loans at required levels instrument is about thefor continuity of assets and cash non-performing loans. ‘’Credits’’ prominent as a crucial economic actualizing investments in global world economy and finance sector. Providing loans at at required levels is about theofcontinuity of assets and cash Costs increase and problems country-wide cause an effect the global level because the risky situation. Debtors flowAllinworld banks at athat reliable level.for When the banks experience a problem ininterest repayment of credit, this trouble causes global economy and finance sector. Providing loans at required levels is about the continuity of assets and cash the credits are given the non-payment risk of principal and payments of credits can be called flow to in be banks at aa fiscal reliable level. When banks experience a problem repayment of credit, thisauditing trouble causes need under discipline and actthelegitimately while banks create in proper credit opportunities; boards serious problems spreading into other and markets within the country. this investments flow in socioeconomic banks atloans. a reliable level.by When the banks experience a problem repayment of actualizing credit, trouble causes non-performing ‘’Credits’’ become prominent as asector crucial economic instrument for in serious socioeconomic problems by spreading into other sector and marketsinwithin the country. should strictly control the markets. serious socioeconomic problems by spreading into other sector and markets within the country. global world economy and finance sector. Providing loans at required levels is about the continuity of assets and cash Costs increase and problems country-wide cause an effect at the global level because of the risky situation. Debtors Costs increase problems country-wide cause experience an effect at athe global level because of riskythis situation. flow in be banks at aaand reliable level. When banks problem in repayment of the credit, troubleDebtors causes need to under fiscal discipline and actthelegitimately while at banks create level proper credit opportunities; auditing boards Costs increase and problems country-wide cause an effect the global because of the risky situation. Debtors need to be under a fiscal discipline and act legitimately while banks create proper credit opportunities; auditing boards serious socioeconomic problems by spreading into other sector and markets within the country. should strictly control thediscipline markets. and act legitimately while banks create proper credit opportunities; auditing boards need to be under a fiscal should strictly control the markets. should control the markets. Costsstrictly increase and problems country-wide cause an effect at the global level because of the risky situation. Debtors need to be under a fiscal discipline and act legitimately while banks create proper credit opportunities; auditing boards should strictlyauthor.Mustafa control the markets. * Corresponding Yurttadur. Tel: 0090 536 681 8968. E-mail address:[email protected]
* Corresponding author.Mustafa Yurttadur. Tel: 0090 536 681 8968. Corresponding author.Mustafa Yurttadur. Tel: 0090 536 681 8968. *
E-mail address:[email protected] * Corresponding author.Mustafa Yurttadur. Tel: 0090 536 681 8968. E-mail address:[email protected] E-mail address:[email protected]
2. Position and Scope of Non-Performing Loans
* Corresponding author.Mustafa Yurttadur. Tel: 0090 536 681 8968. E-mail address:[email protected] 1877-0509 © 2019 The Authors. Published by Elsevier B.V. 1877-0509 © 2019 The Author(s). Published by Elsevier B.V. Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship 2. Position andresponsibility Scope of Non-Performing Loans Peer-review of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship 2. Positionunder and Scope of Non-Performing Loans 10.1016/j.procs.2019.09.113
2. Position and Scope of Non-Performing Loans
1877-0509 © 2019 The Author(s). Published by Elsevier B.V. 1877-0509 © 2019 The Author(s). Published by Elsevier B.V. Peer-review of the scientific of the 3rd World Conference on Technology, Innovation and Entrepreneurship 2. Position andresponsibility Scope of Non-Performing Loans 1877-0509 ©under 2019 The Author(s). Published bycommittee Elsevier B.V. Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
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Non-performing loans can be defined as the credit risk that is taken by the banks. Credits become problematical by several reasons such as occurring loss risk; postponement of payment by major infringement of the contract; being experienced problems in loan repayment by company or individuals. This circumstance that constitutes a serious problem in terms of banks is a required risk factor for profitability. Customer loyalty and profitability have become the chief goal of banks in return for all the investments that banks perform from ones with fund surplus to individuals in need of funds.1
Three possible situations may occur after being opened a credit by the bank;
• Credit might be assigned by the bank based on the conditions of the contract. • Credit terms and payment plans can be reorganized. • Credits cannot be assigned in accordance with the contract by the bank customer for various reasons. 2
Following reasons come to the forefront when looking at conditions of occurring non-performing loans; current market conditions, problems in debt guarantee, due date, irregularities in cash flow, financially indiscipline of debtor institution, organizations or individuals. The non-performing loan can be defined as postponement of payment and occurring loss risk by major infringement of the contract between bank and debtor.3 Since credit stage is a rocky road in terms of both credit institution and debtors, directors in both two sides need to have enough knowledge and experience. Possible problems in loan repayment because of remaining economically incapable of customers can be predetermined in some instances. Problems in credits cause multi-directional economic effects at the macro and micro level. Credit fact that is an important function of the financial system comes to the fore as a tool that is used to turn something into an investment by economic units. Thus, the resource productivity of society increases and helps living standard to increase as well. 4 Effects of non-performing loans are as follows;
• • • • •
Effects on the banking sector Effects on capital adequacy Effects on the real sector Effects on asset quality Effects on profitability
3. Effects of Non-Performing Loans on Banking Sector Banks open credit for needers as a requirement of profit-oriented structures besides their main activities. However, they take the not-payment risk by giving credits. This risk acquires a different dimension by cost and/or collateral of the credit based on the type of credit.5 These related risks have a huge sphere of influence indeed. Because the banks use external financing resources to make transactions within their activities and also start to credit borrowing to serve to domestic market users. Especially sudden fluctuations in foreign exchange rates create serious problems for institution, organizations, and individuals who contract debt in foreign currency. This disparity and paradox in exchange rates create a negative impact on capital structures of banks as well as there is seen a downward tendency in capital adequacy ratios of banks because of the increase in foreign currency. Therefore, possible negative fluctuations decrease the yield that banks expect or increase the borrowing costs. 6 A situation that negatively affects the banking system becomes an economic problem in terms of the finance sector by creating a domino effect.
1 Koyuncu Cuneyt, Saka Berrin. (2011) '' The Effect of Non-Performing Loans on Private Sector Loans and Investments '', Dumlupınar University Journal of Social Sciences: 113-115. 2 Takan Mehmet, Boyacıoğlu M. Acar. (2011) “Banking Theory, Practice and Methodology”, Nobel Academic Publishing 2: 77-79. 3 Aktaş Ramazan (2000) “Non-performing Loans”, TBB Education and Promotion Group Seminar Notes: 14-16. 4 Afşar Muharrem (2006) “Financial System and Operation”, Gülen Publishing: 5-7. 5 Yücememiş Başak Tanınmış, Sözer İnanç Asım. (2011) “Non-performing Loans in Banks: Implementation of a Model for the Forecasting of Nonperforming Loans in the Turkish Banking Sector”, Marmara University Journal of Financial Studies and Studies 3(5): 43-45.
6
Çatalca Hasan, Aktan Bora, Soydan Halit. (2008) “Market Risk Management in Commercial Banks”, Political Bookstore: 15-17.
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Quality of assigned credits confronts us as the essential factor that causes the financial crisis and banking system to disrupt.7 Economic troubles negatively affect the growth rates of the national economy. One of the essential factors which provide solidity and harmony of the financial system is being a low ratio of non-performing loans.8 Being remained incapable of banks causes an increase in the amount of non-performing loans.9 There will start a liquidity risk if the banks cannot fulfill their commitments. This risk occurs in the case of short-dated assets cannot meet short-dated commitments.10 High costs of credits and obligations of non-performing loans cause credit rating of banks to decrease. Moreover, there is an observed decline in loan demands as the result of decelerating productive and investing activities of company and enterprises because of non-performing loans. Banks need to specialize in credits to reduce transaction costs. Ǥ Since the problem that arises in the credit system can affect the whole economic system, the banking system needs to have enough knowledge and experience and be in a solid structure. Finance market that has a dynamic structure will become a situation that affects all the economic structure and swiftly spreads into markets and economic institutions about the possible credit risks. This circumstance may cause the whole banking sector and economy to be affected.11 3.1. Effects on Capital Adequacy Capital adequacy is directly proportional to its own resources in terms of the banks. The coverage ratio of banks for the possible losses and risks that may occur credit operations that are given or collected reveals capital adequacy of the banks. A strong resource structure is important in crisis and depression periods when funding gets difficult. 12 Market discipline and an efficient audit system should be established beside the rules that need to be applied for continuity and reliable and strong financial system structuring. Having strong resources in terms of capital will strengthen the position of the banks against credit risks and provide an advantage against audit mechanisms. Banks enter into the obligation of keeping proper and enough capital in remuneration for this risk born.13 Non-performing loans that negatively affect the profit of banks cause rates of profit to decrease; bank balance sheets to suffer; banks to share extra capital. In addition to all these, since sanctions relating to credits are specified by legislation and also the procedures are certain, banks are obliged to share extra capital for applications that are conducted in this process. Due to all these reasons, banks need to have strong ‘’risk management’’ to calculate the credit risk; establish, measure and evaluate the required capital structure. Establishing risk management can be realized by a structure that is accepted at an international level. This is because while it places as risk-weighted assets and non-cash loans in Basel I, it places as an element of risk in credit risk amount in Basel II.14 Effects of non-performing loans and high risks on banks are as follows: • • • • •
•
It is not possible to be directed funds that are shared because of non-performing loans to alternative areas with a higher return. Since non-performing loans need close follow-up, administrative expenses increase. Non-performing loans prevent directors to direct their time to more productive domains. Non-performing loans cause the image of the bank to be tarnished; accordingly, the progress of the bank will be negatively affected. Non-performing loans necessitate expertness in legal issues, there occur legal expenses at a high level. As the amount of non-performing loans in banks increases, the morale of the bank’s employees is negatively affected because of low return and bounded growth 15
Mesai A. S., Jouini F. (2013) ''Micro and Macro Determinant of Non-Performing Loans'', Inretnatıonal Journal of Economics and Financial Issues, 3(4): 851-853. 8 Negera Wondimagegnehu. (2012) “Determinants of Non Performing Loans The Case of Ethiopian Banks'', W.N. Geletta Research Report: 54-56. 9 Abd Karim, M. Z. Sok, G. C., Hassan S. (2010) ‘‘Bank Efficiency and Non-Performing Loans: Evidence from Malaysia and Singapore’’, Prague Economic Papers: 121-123. 10 Çelik Faik, Ekinci Mehmet Behzat. (2002) "Failure of Risk Management and Prevention of Banking Crisis in Turkey: A Strategic Approach" Active Magazine 2: 56-58. 11 Sayım Ferhat (2006) "Provision for Loan Bank System and the Tax Investigation," Banks Association of Turkey Publications: 39-41. 12 Aydın Demet, Başkır M. Bahar. (2013) “Clustering Analysis of Banks according to Capital Adequacy Ratios of 2012 and Classification Structures Based on Multidimensional Scaling”, Journal of Banking and Insurance Studies 1 (5): 32-34. 13 Göçmen Gamze (2017) “Balance Sheet Developments in the Banking Sector Operations in Turkey”, Dumlupınar University, Journal of Social Sciences 17: 18-20. 14 Selimler Hüseyin, Kale Süleyman. (2012) “Evaluation of Off-Balance Sheet Transactions in Turkish Banking Sector in Terms of Risk and Profitability”, Marmara University Journal of Economics and Administrative Sciences 33 (2): 191-193. 15 Kavcıoğlu Şahap (2003) “Management of Non-performing Loans in Commercial Banks, Solutions and Tracking”, Türkmen Bookstore: 48-50. 7
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3.2. Effects of the Real Sector
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The relationship between bank credits and investment expenditures is run by the monetary transmission channel that is called the credit channel.16 Besides banks, the biggest negative effect of non-performing loans can be seen in sourcing for having new investments. Banks prefer to limit credits in environments in which market conditions become unbalanced. Moreover, banks cannot give a positive answer to companies which demand credit for production and employment; the national economy is damaged because of this circumstance. 17 Non-performing loans which cause credit interests to increase cause cost inflation; the national economy is negatively affected at the same time. Crises that trigger each other as the result of this unstable environment may repeat itself in a circle. Arising a problem in paying credits of companies reflects as an extra cost for the companies; companies may be involved in a failure by suspending all the activities of the companies by causing breakups in the balance of income and expenditures. Effect of closed companies on individuals confronts us as unemployment and economic shocks. Ending publicly-held corporations that are established by savings of citizens negatively affects account owners.18 Following items can be shown as examples for the real sector to be affected; • • • • • •
•
Using over costing foreign assets Economic Recession The negative effect of liquidity problems of companies on company balance sheets Economic shrinkage at the total demand level The decrease in loan supply Shrinkage in credit sale by market credits Increase in the number of companies which closed or announced bankrupt can be shown as examples for the problems of the real sector. Therefore, transmitting the sources that are created by the diversity of instrument and institutions in a developed financial system to productive areas is essential. 19
Legislators and governments can explain new economic stimulus packages or provide financial assistance to avoid losses and provide confidence in markets. Much as this circumstance increases budget deficits and real interests, improvement in confidence provides conscience in suppliers based on increasing demand. 20 3.3. Effects of Asset Quality Non-performing loans that affect the quality of assets negatively affect productivity and costs as well. While related negative effect creates problem in creating new resources and making new loans, excess of sources that are expended to collect non-performing loans negatively affects profit-productivity balance. The key reason for the troubles about banking arises when there occurs a payment problem because of lack of liquidity and also when depositors appeal to the bank to receive their deposit. 21 This situation that causes banks to get into a scrape about giving credits creates problems in creating proper credit opportunities and credit assignment. The related situation which causes providing a basis for other applications except for rules of the government also allows for actualizing informal transactions. The problem can be solved if economic uncertainty decreases and public finance can rich a healthy structure.22 Çinko Levent, Ak Rengin. (2009) '' Anatomy of Banking Crises in Globalizing Economies '', Finance Articles, 23 (83): 59-61. Sipahi Nihal (2003) "Restructuring of Credit International Applications and Problematic Case of Turkey", TCMB Publications: 21-23 18 Aktaş Ramazan (1997) “Financial Failure and Forecast Models”, Türkiye İş Bankası Publications, Ankara: 16-18. 19 Erim Neşe, Türk Armağan. (2005)” Financial Development and Economic Growth“, Kocaeli University Institute of Social Sciences Journal 10: 21-23. 20 Claessens Stijn, Klingebiel Daniela, Laeven Luc. (2001) “Financial Restructuring in Banking and Corporate-Sector Crises”, Ed: Dooley, P. Michael & Frankel, A. Jeffrey. Managing Currency Crises in Emerging Markets. USA: The National Bureau of Economic Research: 177-179. 21 Çinko Levent, Ak Rengin. (2009) '' Anatomy of Banking Crises in Globalizing Economies '', Finance Articles 23(83): 62-64. 16 17
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Toprak Metin, Demir Osman. (2001) Turkish Banking Sector: Problems, Crises and Quests “Cumhuriyet University Journal of Economics and Administrative Sciences 2 (2): 5-7.
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Since the quality and consistent structure of asset quality in banks and companies reflect system as a source of welfare and income, more project and investment will be supported. Thus, total income and welfare level can be increased due to investments of economic units and revenue of fund suppliers. 23 Non-performing loan and asset quality of banks are the indicators of the capacity of individuals and economic structure to pay their debts. Decreasing this capacity is a signal of economic shrinkage and a crisis period. There is seen an increase in the non-performing loan because of unemployment and welfare loss risk of household and revenue loss risk of the real sector in economic shrinkage periods; asset quality decreases in the finance sector in related period. 24 3.4. Effects on Profitability Banks share an extra amount for non-performing loans and deduct related amounts from net interest income. This circumstance creates a profit-decreasing effect for the banks.25 Financial problems in markets cause economic instability; since the banks bear interest loan and cannot collect, those problems negatively affect bank profits by creating breakups in the financial structure of the banks. Decreasing resource of banks may decrease the size of equities in such periods.26 Banks extend their credit limit by keeping profit in reserve fund account instead of distributing them. This situation will negatively affect the profitability of banks. Accordingly, the bank will show a tendency to increase loan pricing.27 Non-performing loans that restrain banks from fulfilling their responsibilities cause proportional decreases in bank profits and also loan rates to increase at the same time. On the other hand, since there will occur an increase in the provision that are made by the Central Bank for problematic credits, there will occur a decrease in profitability because of being negatively affected shareholder’s equity. 28 Non-performing loan need to be collected and the sources for loan tracking need to be decreased for bank profits to increase. 4. Conclusion Crises in any sector and country show a tendency to affect each other by creating a domino effect as a result of interacting local finance and economic systems with international systems. We witness that interaction is very fast in today’s world where globalization is at top. The sharpest example in which the damage of non-performing loans to the economy is felt at most is the ‘’Mortgage’’ crisis in the USA in 2008. This financial crisis that started in the USA affected the whole world negatively; had a harmful effect on economic systems; created reasons for enterprises to go bankrupt. The primary concern here is the possibility of being affected the whole system negatively by disrupting financial systems of the banks which cannot collect non-performing loans. Banks could not financially analyze the enterprise or companies well which demand credit; possible risk factors have been ignored by profit-oriented structures. Credits that are given by banks become problematic because of reasons such as exchange rate; liquidity problems of company and firms; receiving loans more than required; lack of financial discipline. Following problems arise as the result of this circumstance: disrupt in capital structure; decreasing the rates of profit and increasing operational costs; underperformance; regression in the ratio of profit-yield; effects of banks on customers who have deposit; decrease in bank activities; distortion in the balance sheet. There is observed bankrupts because of high-interest payments, problems in liquidity flow, decreasing proper investmentcredit opportunities, recession in the balance sheet. These related problems propose state intervention to financial markets for the agenda by causing a socioeconomically imbalance. Below suggestions can be aligned for the credit system to run in a proper way; • • •
The government should organize required laws and regulations in a structure that can be integrated into the world. The government also should follow the whole structure in the application phase, Banks ought to keep experienced expert staff in decision-making units. Real data should be used as a base in credit facility stages, The consulting function of banks needs to increasingly continue in issues like financial structures and liquidity flow of companies,
Yazıcı Mehmet (2011) “Introduction to Banking “, Beta Publications: 13-15. Inaba Nobuo, Kozu Takashi, Sekine Toshitaka, Nagahata Takashi. (2005) "Non- Performing Loans and The Real Economy: Japan's Experience", BIS Papers 22: 113-115. 25 Okay Esin (2002) “Risk and Crisis in Turkish Banking Sector”, Istanbul Commerce University Journal: 103-105. 26 Yıldırım Oğuz (2014) “Turkish Banking System”, Seçkin Publishing: 49-51. 27 Sayım Ferhat (2006) "Provision for Loan Bank System and the Tax Investigation," Banks Association of Turkey Publications: 57-59. 28 Sipahi Nihal (2003) "Restructuring of Credit International Applications and Problematic Case of Turkey", TCMB Publications: 20-22. 23 24
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The goal should not be giving a high ratio of credit; banks should serve proper credit opportunities to credit users, Company or enterprises ought to produce added-value by using the credit toward investment and production without leaving financial discipline, The chief goal should be paying off the credit debt by directing the value gain that is arisen as the result of credits to loan repayments, Crises become cycle when credits enter to a problematic structure and confront us as an imbalanced structure by negatively affecting all the economic layers. This is because credits should be protected from a problematic structure.
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