Aim of the study: This study investigates the potential effects of selected macroeconomic factors on the profitability expectations of financial institutions operating in Türkiye.
Methodology and data: The Autoregressive Distributed Lag Bounds Test (ARDL) method is employed, with data covering the quarterly period from 2012:3 to 2022:4, obtained from the Central Bank of the Republic of Türkiye, the Organization for Economic Co-operation and Development, and Investing.
Contributions to the literature: This study, which investigates the effects of selected macroeconomic indicators on the profitability expectations of financial institutions in Turkey, is suitable for contributing to the related literature in two main aspects. First, it is the first to investigate the profitability expectations of financial institutions. Second, it also allows for an analysis of the profitability of financial institutions as a whole for the Turkish sample.
General conclusions: It
is understood that macroeconomic factors, which are determined within the dynamic structure of economies and cannot be controlled, impact the profitability expectations of financial institutions. Therefore, decision-makers determining financial institutions' profitability expectations and related strategies should consider the relevant macroeconomic factors. Increasing composite leading indicators may help financial institutions adjust their profitability expectations positively. On the other hand, an increase in inflation, CDS premiums, and stock prices may prompt decision-makers to be more cautious when adjusting profitability expectations. Moreover, the fact that profitability expectations increase during periods of financial crisis and recession warns policymakers about the importance of financial institutions in economic systems, especially regarding factors such as fund supply and product diversity. On the other hand, adverse conditions that can positively affect the profitability of financial institutions, such as the increase in volatility as measured by the exchange rate and the VIX Index, should also be carefully monitored by both decision-makers and policymakers. This
is because, although these factors are positively correlated with the profitability of financial institutions, this may be mainly due to their predictability or ability to sustain financial transactions. However, financial actors may stagnate or even withdraw from the markets when they become damaging to the economic system. This can cause permanent damage to the entire economic system, including the profitability of financial institutions. Consequently, decision-makers and policymakers should focus on the macroeconomic factors that can preserve the dynamic structure and profitability of financial markets and other endogenous and exogenous components that can affect profitability.
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