Analysıs of the relatıonshıp between rısk ındıcators and fınancıal performance ın partıcıpatıon banks: the case of türkiye

This study examines the impact of risk indicators on financial performance in participation banks operating in Turkey. Participation banks, which operate according to interest-free banking principles, have their own unique risk structure. In this context, the effects of credit risk, liquidity risk, operational risk, leverage risk, and market risk on financial performance indicators were investigated using panel data analysis with data from the 2016–2023 period. The relationship between variables in the analysis was determined using the Driscoll–Kraay (1998) method and the random effects method. The analysis results show that the loan loss ratio (credit risk) and asset volatility (market risk) in participation banks have statistically significant effects on financial performance. Operational risk and leverage risk were found to be significant in some models, while the impact of liquidity risk remained statistically weak in all models. Generally, it has been observed that risk indicators have a heterogeneous and variable impact on financial performance. The study contributes to the literature on participation banking and offers suggestions to policymakers regarding the development of risk management strategies.