An Empirical Analysis of the Bank Lending Channel in turkey

This paper studies the role of banking sector in monetary policy transmission in Turkey covering the period 1988-2009. Specifically, we investigate the impact of monetary policy changes on banks’ lending behavior. Given the changes in the policy stance and developments in the financial system following the implementation of structural reforms in the aftermath of the 2000-01 crisis, the analysis is further conducted for the two sub-periods: 1988-2001 and 2002-2009, to examine whether there is a change in the functioning of the credit channel. Based on bank-level data, empirical evidence suggests cross sectional heterogeneity in banks’ response to monetary policy changes during 1988-2009. Regarding the results of the pre-crisis and post-crisis periods, we find that an operative bank lending channel existed in 1988-2001, however its impact became much stronger thereafter. Furthermore, there are significant differences in the distributional effects due to bank specific characteristics in the impact of monetary policy on credit supply between the two sub-periods. While the results indicate an operative bank lending channel due to earnings capability and asset quality in the first period, size, liquidity, capitalization, asset quality and managerial efficiency seem to make a difference in the lending responses of banks to monetary policy in 2002-2009.