CREDIT TRANSMISSION MECHANISM IN TURKEY: AN EMPRICAL INVESTIGATION

A. Tarkan ÇAVUŞOĞLU (Hacettepe University)

As the major intermediary institutions in the economy, banks play a significant role in the determination of output by supplying funds for investment finance in the real economy. Bank loans constitute the major part of the sources of external finance for most firms. Therefore, economic activity appears to be sensitive to the shocks on bank lending behaviour. In the context of the bank lending channel of the monetary transmission mechanism, economic activity is said to be affected by bank lending behaviour in case of monetary shocks that affect the loan supply of banks.

The purpose of the study is to empirically test the presence of an active bank lending channel in the Turkish economy. The empirical investigations are focused on the bank lending behaviour of 58 deposit money banks in the Turkish banking system over the period 1988-1999. The estimation methodology of the empirical analysis differs from that of similar studies in the literature, providing econometrically more efficient model estimates through exploiting the dynamic panel data modelling with Generalized Method of Moments estimations.

The results of the model estimations provide no evidence of a potential for a bank lending channel to exist in the Turkish economy. Such an outcome is reflected in the lack of a significant relationship between the change in the monetary policy indicator and the growth rate of the loan supply in the estimated models. Categorizing the loan supply responses of banks with respect to bank size differences and private-public bank differences has not provided any improvement in revealing the evidence of an active bank lending channel. The empirical results point out that the bank lending behaviour is influenced significantly by bank specific factors such as the balance sheet strength and the quality of the asset portfolio and by the macroeconomic effect of financing public sector borrowing requirements through debt sales to the banking system.