An Analysis on the Performance of the Participation Banks in Turkey

Abstract

Interest-free banking practice in Turkey commenced in 1983 and was integrated within the framework Banking Regulation and Supervision Agency (BRSA-BDDK) in 2005. These banks name’s had been changed as participation banks. With these changes, participation banks were treated with the same legal regulations as commercial banks; therefore, it is worth investigating their comparative performance under the new conditions. To do this, the CAMELS approach was employed for the comparison of the performances and determination of the differences between the two types of banking practices.

Our analysis shows that, compared to the regular banks, the participation banks performed well with respect to their sensitivity to the market risks. On the other hand, they appear to have done poorer in terms of liquidity and management within the period of 2006-2011. Taking into consideration the pros and cons, the participation banks in Turkey may be suggested as effective as the commercial banks.