DETERMINING THE RELATIONSHIP BETWEEN PARTICIPATION BANK’S PROFIT RATES AND DEPOSIT BANK’S INTEREST RATES WITH NON-PERFORMING LOAN(NPL) RATIOS

Participation banks’s credit profit rates are higher than depozit bank’s credit interest rates. It is believed that, eventhough with higher financing costs, customers who choose participation banks over to deposit banks shall have a problematic profile that has lower payment power. Therefore, it is expected that paticiptaion bank’s NPL ratios would be higher than depozit bank’s NPL ratios. Monthly profit rates applied for credits and non-performing loan(NPL) ratios of participation banks which are operating in Turkey, monthly interest rates applied for credits and NPL ratios of deposit banks which are operating in Turkey for the time between January 2005 and September 2015 are used. For determining the relationship between participation bank’s profit rates and deposit bank’s interest rates with NPL ratios; correlation, unit root test, VAR, Granger causality, and impulse-response analyses are applied. Due to analyese’s results, NPL ratios are not direct result of profit/interest rates. In the light of analyses, it is determined that participation bank’s higher profits rates for credit are not resulted to higher NPL ratio as it is foreseen