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Distance to default for Turkish banking sector
(İstanbul Bilgi Üniversitesi, 2019) Koyunlu, Sercan; Tür, Sema Bayraktar
This thesis examines the riskiness of the Turkish Banking system analyzing 16 banks traded at Borsa Istanbul(BIST) Banking Index between 1996 and 2018 by using a structural approach known as the Merton Model. Also, whether the model is a good predictor of the financial crisis and financial failure is investigated. Since the literature is heavily dependent on accounting-based models and artificial intelligence models, the alternative measurement for riskiness for Turkish Banks is suggested. In this context, the distance to default based on Merton’s structural approach is measured and via suitable logit and probit model is converted to the default probability. Using these results, whether the model can be used as an early warning indicator for the crisis and bank failure is examined. According to the results, the logit and probit model is statistically significant at 1% level of significance up to 12 months. The results also show that DD, in the case of Turkish Banking Sector, can be useful as an early warning indicator for banking failure but, there is no evidence that it can be helpful to detect economic crisis.