Long-term analysis of riskiness in the Turkish banking sector

Abstract

This study aims to measure and track the riskiness of the Turkish banking sector for the longest period available by implementing Merton-based model. The sample in the study includes 16 banks traded at Borsa I?stanbul (BIST) between 1996 and 2018. Distance to default (DD) values are calculated for each bank in the sample period. It is observed that DD numbers generally reach their maximum values in the years before the crisis and significantly decrease during the stressful periods. The results also show that DD is a strong indicator for forecasting bank failure and a good indicator for forecasting crises. This means that it can be used as an early signal for forecasting the riskiness of individual banks and the overall sector. © Peter Lang AG 2020.