Measuring Financial Stress in the Turkish Banking Sector and Its Evaluation in the Context of the Economic Crisis

Abstract

This study develops the Turkey banking sector stress index for the period of 2012-2021. For this, sector beta, volatility, return on assets, capital adequacy ratio, and asset quality variables were used. The variables were combined with the variance equal-weight method, and a single index was constructed. The reliability of the index was evaluated in terms of whether it detects the years shown as the economic crisis years by the experts. As a result, it has been determined that the index detects the exchange rate crisis that broke out in Turkey in 2018 and the global economic crisis caused by COVID-19, the effects of which began to appear in 2020. In addition, it is predicted that there may be an increase in the number of concordats and bankruptcies in years when the stress index is high. It has been determined that the Turkish banking sector is resistant to crises.