The Bank Lending Channel of Monetary Transmission in Turkey

Abstract

In this paper, it is aimed to fill a gap in the literature by providing empiricalevidence on the influence of monetary policy of Central Bank of Turkey on bank lendingin Turkish financial system. In the analysis, the bank level data consisting of 20 banksand monthly market interest rates are used for the period 2001-2017. The findings ofthe study address three different perspectives of transmission of monetary policy rates.Firstly, the effect of the policy rate on bank lending rates is evaluated and it is confirmedthat a change in the policy rate has been reflected in banks’ lending rate with 3 monthslag. The second group of findings report that the monetary policy affects banks' lendingrate in Turkey mainly through its effects on the deposit rates with a lag of 2 months. Thethird perspective focuses on the balance sheet channel of monetary policy transmission.The results indicate that mainly the policy rate of central bank and liquidity level affectthe supply of bank loans. Each of the variables of the adequacy of bank capital and ROAaffects the bank’s supply of the loans. Amongst the economic variables, the GDP growthhas a positive and significant and stock exchange index has negative and significantrelation with the supply of bank loans.