Possible Effects of Real Estate Limitation Removal by Which Banks Obtain Due To Bad Debt: An Examination upon Deposit Banks

Turkish Banking Sector has been sustaining its growth process after 2002. In this process, a lot of regulations have been made regarding the sector. The removal of limitation of real estate acquired by banks due to their bad debt is one of the most important recent regulations. This study was prepared to evaluate possible effects of the regulation on Turkish Banking Sector and Turkish Economy. As a conclusion, it was determined that capital adequacy ratio of banks, which have obtained real estates in assets, will increase with the removal of real estate limitation. Banks are able to give much more credits due to an increase in capital adequacy ratios. On the other hand, the regulation would lead to an increase in real estates in the assets of banks and thus the regulation would cause deterioration in asset quality. With regard to macro economy, it was anticipated that the regulation would have an increasing effect on real estate credits, prices of real estates, inflation and interest rates. Effects of the regulation should be followed up strictly in order not to cause a negative effect on Turkish Banking Sector and Turkish economy. At this point, the most important responsibility belongs to all regulatory authorities, notably Banking and Regulation Supervision Agency. It would be beneficial to resort to putting a limitation if negative effects were seen. This paper is a pioneer study since there is no study on the effects of the removal of real estate limitation of banks