Overview

This thesis studies the factors determining deposit rates of the deposit banks in Turkey. Emphasizing the role of risk components in price-setting behavior of banks, the study attempts to explain the heterogeneity between interest rates on deposits by global, domestic, and bank-specific risk factors. Further, competitive conditions are explored in the deposit market taking into account the reaction functions of banks, which are classified by their deposit sizes. The thesis contributes to the existing body of literature in two ways. First, novel to the economic literature, competition among the banks, which has been used to be measured by mainly the concentration ratios, is proxied by the average deposit rate of the rivals of a given bank under the assumption that competition takes place among banks with similar deposit size. Second, the two-step estimation process decomposes the deposit rates into risk elements and market structure. Covering the period from September 2013 to December 2016, the analysis investigates how deposit banks operating in the Turkish banking sector set deposit rates. In line with the expectations, riskiness of a bank is found to be associated with higher deposit rates. Further, the results show that banking organizations in deposit market operate under imperfect competition, and that the degree of competition varies across groups.

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9781790730049

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