Financial Determinants of Bank Profits: A Comparative Analysis of Turkish Banking Sector

The main purpose of this study is to analyze the role of financial determinants on the bank profits in the Turkish Banking Sector. A comparative analysis has been conducted to predict the bank profits using Support Vector Regression (SVR) and Linear Regre

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Financial Determinants of Bank Profits: A Comparative Analysis of Turkish Banking Sector Hasan Dincer, Ümit Hacioglu and Senol Emir

Abstract The main purpose of this study is to analyze the role of financial determinants on the bank profits in the Turkish Banking Sector. A comparative analysis has been conducted to predict the bank profits using Support Vector Regression (SVR) and Linear Regression (LR) models. The results illustrate that Net Interest Income After Specific Provisions/Total Operating Income, NonInterest Income/Non-Interest Expense, Provision For Loan or Other Receivables Losses/Total Assets predictors have the most relative importance on SVR while Non-Interest Income/Non-Interest Expense, Provision For Loan or Other Receivables Losses/Total Assets predictors have it on LR. On the datasets containing these predictors, performances of SVR and LR models were compared based on Root Mean Square Error (RMSE) and Mean Absolute Error (MAE) metrics. The findings present that SVR predicts the level of bank profits better than classical LR model based on both metrics.

8.1 Introduction Understanding the nature of profitability in banking sector relies on capital market conditions as well as predicting the complex structure of financial determinants for financial performance. During the last five years, the banking industries in H. Dincer (&)  Ü. Hacioglu Department of Capital Markets and Portfolio Management, Beykent University, Beylikduzu Campus, 34500 Istanbul, Turkey e-mail: [email protected] Ü. Hacioglu e-mail: [email protected] S. Emir Department of Computer Programming, Beykent University, Beylikduzu Campus, 34500 Istanbul, Turkey e-mail: [email protected]

H. Dincer and Ü. Hacioglu (eds.), Globalization of Financial Institutions, DOI: 10.1007/978-3-319-01125-7_8,  Springer International Publishing Switzerland 2014

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advanced economies have experienced severe financial crisis which had negative impacts on financial performance and capital structure. Subsequently the financial crisis in capital markets had its reflections on the global economic activity and was followed by deep economic downturns. Economic activity, which relies on the intermediation role of the banks, requires the stability in the financial markets. In addition to this, the major transformations in banking industry and deregulations in financial markets throughout the World have subsequently affected the structure and financial performance of the banking sector in emerging economies and Turkey. The most of the studies on the bank profits are concentrated in the efficiency and productivity of the banking sector. Moreover, integrated models used with the international and domestic determinants and the econometric analysis by the unbalanced panel dataset have been conducted to predict bank profits, efficiency and market concentrations prior to this study. Capacity, the level of competition and size of the banks are the main pillars of the profit efficiency studies. Tax, monitoring and