The Symmetric and Asymmetric Relationship Between the Ratio of Non-Performing Loans and the Return on Equity: Evidence from Borsa İstanbul

Abstract The Non-Performing Loans (NPL) ratio is an important indicator of banks' success in credit management in the banking industry. With the increase in this ratio, banks' profitability is adversely affected. This study investigates the short and long-term asymmetric relationship between NPLs and the Return On Equity (ROE) of banks listed on the Borsa Istanbul (BIST) using quarterly data from 2008:Q1-2017:Q4. We have formulated four different models for each bank with Autoregressive Distributed Lag (ARDL), and Non-Linear Autoregressive Distributed Lag (NARDL) to evaluate the relationship between the selected variables. After our evaluation, the empirical results show a long-term asymmetric relationship between ROE and NPLs for most banks in BIST.