Macroeconomic Determinants of Bank Profitability

Abstract

This study investigates how selected macroeconomic variables affect banking-sector profitability in Türkiye. Return on assets (ROA) is used as the indicator of profitability, while inflation, GDP growth, the official exchange rate, and the real interest rate are treated as explanatory variables. Annual data for 1980-2024 are analyzed using unit-root tests, residual-based Engle-Granger cointegration tests, and an error-correction perspective for short-run adjustment. The reported coefficients suggest that inflation is negatively associated with ROA, GDP growth has a positive association, exchange-rate volatility is economically relevant but only weakly significant in the direct regression, and the real interest rate is linked to profitability in the long run through the residual-based test. At the same time, the unit-root results indicate mixed integration orders across variables, so the long-run findings should be interpreted with methodological caution and validated through a robustness check based on an ARDL framework. Overall, the paper supports the view that macroeconomic stability is central to the profitability and resilience of the Turkish banking sector.