Bank Specific and Macroeconomic Determinants of Profitability: Evidence From Participation Banks in Turkey

In this paper I investigate the bank specific and macroeconomic determinants of profitability in participation banks for Turkish banking sector by looking at two different profitability indicators namely return on assets (ROA) and return on equity (ROE). I find that in terms of bank specific determinants of profitability the ratio of non-performing loans to total loans and log of real assets are both highly significant and the former one has a negative effect on profitability whereas the latter one has a positive impact on profitability in participation banks. The ratio of equity to total assets is highly significant for both indicators but it has different effects on ROA and ROE. In terms of macroeconomic determinants of profitability the level of exchange rate and the real interest rate are significant and they are expected to have a positive impact on profitability in participation banks.