Huseyin Ozturk

The Drivers of Credit Default Swap Prices: Evidence from Selected Emerging Market Countries

In this study, we empirically investigate the relationship between credit default swap (CDS) spreads and financial market indicators belonging to bond, equity, and foreign exchange markets for the selected emerging market countries. This study has several findings. The empirical results suggest that the CDS spreads have a cointegrating relationship with the remaining financial market indicators for the whole sample. Another finding that deserves particular attention is that in the long run, the CDS spread is negatively related with the CDS market uncertainties. We argue that this negative relationship indicates low liquidity in the elevated uncertainty, which decreases CDS prices. The time-varying effects of each variable on the CDS spread are in line with the results obtained from the cointegration analyses. These findings have several implications for investors and policymakers in emerging market countries.

Are Islamic Banks Subject to Depositor Discipline

We look at market discipline in the Islamic deposit market of Turkey for the period after the 2000 crisis. We find support for quantity based disciplining of Islamic banks through the capital ratio. The evidence for price disciplining is, however, less convincing. In addition, we also look at the effect of the deposit insurance reform in which the dual deposit insurance was revised and all banks were put under the same deposit insurance company in December 2005. We observe that the reform increased quantity based disciplining in the Turkish Islamic deposit market.

Bank lending channel in a dual banking system: Why are Islamic banks so responsive?

We examine the interest rate sensitivity of both deposits and credits at Islamic and con- ventional banks in Turkey. We find that the bank lending channel is especially operative for Islamic banks. Impulse responses for conventional and Islamic banks reveal that Islamic bank depositors’ sensitivity to policy rate changes are substantially larger than that of con- ventional bank depositors. Next to heavily dependence on deposit funding, we consider that inertia in Islamic bank deposit rates impedes these banks to keep those depositors who con- sider the opportunity cost of monetary policy rates is unbearable. At the lending side, we obtain similar results, implying that tight monetary policy leads to a larger contraction in Islamic bank credits. This finding is a reflection of the favorable attitude of Islamic banks towards SME financing. When similar relationships are analysed for currency and inflation shocks, we again find larger responses for Islamic banks showing the cyclical nature of SME credits.

FINANCIAL CRISIS, MACROPRUDENTIAL POLICIES AND DEPOSITOR DISCIPLINE

This paper examines to what extent macroprudential policies in the Turkish banking sector affected the functioning of depositor discipline. Our results suggest that depositors’ responses for poor bank performance get stronger after the 2008 crisis, when various macroprudential measures were implemented to preserve financial stability. In the aftermath of the crisis, bank behavior toward depositors also alters. Ahead of the crisis, banks did not significantly respond to the discipline exerted by depositors, however, banks begin offering higher rates to curb deposit withdrawals afterwards. Our findings suggest that the implementation of macroprudential tools seem to have a positive impact on financial stability, since, in the post-2008 period, regulatory supervision have been more firmly assisted by the market.

Macroeconomic Drivers of Loan Quality in Turkey

ABSTRACT We analyze the drivers of nonperforming loans in the Turkish banking system after the 2000–01 Turkish banking crisis. By constructing a vector autoregression model, we perform dynamic out-of-sample forecasts, which yield quite accurate results compared to the actual data. Since forecasting is a very crucial tool for both policy makers and market players, these results are some of the main strengths and contributions of this study. This article shows various patterns between the economic and financial indicators and the nonperforming loans. One important message obtained from the results is that policy makers should be concerned about the status of the economy and the market expectations to maintain stability in the banking system.

Macroeconomic shocks and Islamic bank behavior in Turkey

Events such as the ‘credit crunch’, ‘bank run’, ‘financial contagion’, ‘flight to quality’ and ‘systemic risks’ have widely transpired in recent times. One important dimension permeating these events is the dynamic link between macroeconomic shocks and banks’ behaviour. Economic crises experienced by five East Asian countries in the late 1990s were accompanied by financial sector problems. The Great Recession of the late 2000s also corresponded to heightened solvency risks affecting over-leveraged banks and financial institutions in many developed countries. In a world of imperfect information, adverse macroeconomic shocks could weaken firms’ balance sheets, diminish bank capital and trigger financial disintermediation. Positive shocks, on the contrary, could increase firms’ net worth and prompt additional bank lending. Understanding the nature of this interaction offers regulators, supervisors, firms and households valuable insights into the process of policymaking, financial intermediation and responding to boom and bust cycles in the economy.