Determinants of non-performing loans and banking costs during the 1999-2001 Turkish banking crisis

Using original survey data collected by the authors we investigate the determinants of non-performing loans and costs in the Turkish banking sector during the crisis period of 1999-2001. Employing ordered choice models, we find that variables measuring unnecessary government intervention and loans given to related companies significantly influenced both non-performing bank loans and the overall cost of the crisis. Poor credit risk assessment and a weak capital base of Turkish commercial banks have also led to a high percentage of non performing bank loans, whereas improper accounting practices, under capitalisation of Turkish banks, as well as weak regulation/supervision have been identified as variables which added to the high cost of the crisis.