An Investigation of the Relationship Between Banks' Use of Derivative Products and Sectoral and Macroeconomic Factors: An Application on the Turkish Banking Sector

Yusuf Pala; Ali Hepşen

Article Details

An Investigation of the Relationship Between Banks' Use of Derivative Products and Sectoral and Macroeconomic Factors: An Application on the Turkish Banking Sector

Authors:

Yusuf Pala | Ali Hepşen

Publisher:

Burdur Mehmet Akif Ersoy University

Main Topics:

Risk management in Banking | Financial Institutions | Financial Risk Management

Journal:

Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty Vol.11 Issue 4, pp.1518-1541

Document Type:

Article

Publication Date:

12/2024

Document Language:

English

Document ID (Org No.):

2001338063

pISSN:

2149-1658

Keywords:

Abstract:

 This study aims to identify the factors determining the use of derivatives in the banking sector. The study sample consists of 23 deposit banks operating continuously in the Turkish banking sector between 2009 and 2022. Derivative products classified as forward foreign exchange transactions, swap currency transactions, swap interest rate transactions, futures transactions, and option transactions are analyzed in terms of selected financial indicators of banks, their characteristics, and their relationship with macroeconomic variables such as inflation. In the study, the random effect panel Tobit regression model is used as a method. The studys findings demonstrate that banks derivative activities are significantly influenced by their on-balance sheet FX position. Size, capital, credit risk pressure, inflation, and foreign ownership strongly influence banks use of derivatives. According to the studys findings, banks primarily use derivatives for hedging in over-the-counter market transactions and for speculation in organized market transactions. However, it has been observed that the drive for speculative trading is dominant in large banks. To counteract this trend, regulators could impose limits on how much banks can use derivative products, with the limits varying based on the banks size, thereby reducing the incentives for large banks to engage in such practices.

 This study aims to identify the factors determining the use of derivatives in the banking sector. The study sample consists of 23 deposit banks operating continuously in the Turkish banking sector between 2009 and 2022. Derivative products classified as forward foreign exchange transactions, swap currency transactions, swap interest rate transactions, futures transactions, and option transactions are analyzed in terms of selected financial indicators of banks, their characteristics, and their relationship with macroeconomic variables such as inflation. In the study, the random effect panel Tobit regression model is used as a method. The studys findings demonstrate that banks derivative activities are significantly influenced by their on-balance sheet FX position. Size, capital, credit risk pressure, inflation, and foreign ownership strongly influence banks use of derivatives. According to the studys findings, banks primarily use derivatives for hedging in over-the-counter market transactions and for speculation in organized market transactions. However, it has been observed that the drive for speculative trading is dominant in large banks. To counteract this trend, regulators could impose limits on how much banks can use derivative products, with the limits varying based on the banks size, thereby reducing the incentives for large banks to engage in such practices.

 This study aims to identify the factors determining the use of derivatives in the banking sector. The study sample consists of 23 deposit banks operating continuously in the Turkish banking sector between 2009 and 2022. Derivative products classified as forward foreign exchange transactions, swap currency transactions, swap interest rate transactions, futures transactions, and option transactions are analyzed in terms of selected financial indicators of banks, their characteristics, and their relationship with macroeconomic variables such as inflation. In the study, the random effect panel Tobit regression model is used as a method. The studys findings demonstrate that banks derivative activities are significantly influenced by their on-balance sheet FX position. Size, capital, credit risk pressure, inflation, and foreign ownership strongly influence banks use of derivatives. According to the studys findings, banks primarily use derivatives for hedging in over-the-counter market transactions and for speculation in organized market transactions. However, it has been observed that the drive for speculative trading is dominant in large banks. To counteract this trend, regulators could impose limits on how much banks can use derivative products, with the limits varying based on the banks size, thereby reducing the incentives for large banks to engage in such practices.

 This study aims to identify the factors determining the use of derivatives in the banking sector. The study sample consists of 23 deposit banks operating continuously in the Turkish banking sector between 2009 and 2022. Derivative products classified as forward foreign exchange transactions, swap currency transactions, swap interest rate transactions, futures transactions, and option transactions are analyzed in terms of selected financial indicators of banks, their characteristics, and their relationship with macroeconomic variables such as inflation. In the study, the random effect panel Tobit regression model is used as a method. The studys findings demonstrate that banks derivative activities are significantly influenced by their on-balance sheet FX position. Size, capital, credit risk pressure, inflation, and foreign ownership strongly influence banks use of derivatives. According to the studys findings, banks primarily use derivatives for hedging in over-the-counter market transactions and for speculation in organized market transactions. However, it has been observed that the drive for speculative trading is dominant in large banks. To counteract this trend, regulators could impose limits on how much banks can use derivative products, with the limits varying based on the banks size, thereby reducing the incentives for large banks to engage in such practices.

Article Details

An Investigation of the Relationship Between Banks' Use of Derivative Products and Sectoral and Macroeconomic Factors: An Application on the Turkish Banking Sector

Authors:

Yusuf Pala | Ali Hepşen

Publisher:

Burdur Mehmet Akif Ersoy University

Main Topics:

Risk management in Banking | Financial Institutions | Financial Risk Management

Journal:

Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty Vol.11 Issue 4, pp.1518-1541

Document Type:

Article

Publication Date:

12/2024

Document Language:

English

Document ID (Org No.):

2001338063

pISSN:

2149-1658

Turkish Banking Sector

Deposit Banks

Derivatives

Hedging

SpeculationTurkish Banking Sector

Deposit Banks

Derivatives

Hedging

Speculation

Issues

Article Details

Authors: Yusuf Pala | Ali Hepşen

Publisher: Burdur Mehmet Akif Ersoy University

Main Topics: Risk management in Banking | Financial Institutions | Financial Risk Management

Journal: Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty Vol.11 Issue 4, pp.1518-1541

Document Type: Article

Publication Date: 12/2024

Document Language: English

Document ID (Org No.): 2001338063

pISSN: 2149-1658

Issues

Authors:

Yusuf Pala | Ali Hepşen

Publisher:

Burdur Mehmet Akif Ersoy University

Main Topics:

Risk management in Banking | Financial Institutions | Financial Risk Management

Journal:

Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty Vol.11 Issue 4, pp.1518-1541

Document Type:

Article

Publication Date:

12/2024

Document Language:

English

Document ID (Org No.):

2001338063

pISSN:

2149-1658