Determinants of the timing of bank failure in North Cyprus

Abstract

Purpose

The purpose of this paper is to investigate the determinants of the timing of bank failure in North Cyprus over the period of 1984‐2002 using a discrete‐time logistic survival analysis.

Design/methodology/approach

The empirical methodology employed in the paper allows for the determination of the factors that influence the time to bank failure. The model links the time of bank failure to a set of bank‐specific factors and macro‐environment that may have exacerbated the internal troubles of the financial institutions.

Findings

An empirical examination of the results on survival analysis reveal that the three variables, namely: low asset quality (total loan as a percentage of total assets), low liquidity (total liquid asset as a percentage of total assets), and high credit extended to the private sector (ratio of the private credit to gross domestic product) are the main factors that explain the survival time of banks in North Cyprus.

Research limitations/implications

For further research this paper may better distinguish time to bank failure if it extends the time period and if it uses exchange pressure from Turkey that may have a direct effect on bank failure in North Cyprus.

Practical implications

Nowadays bank failure is an important problem in the world. Using time technique to investigate bank failure will help to learn the factors that determine time to bank failure, which will further help to take precautions and prevent the cost of bank failure.

Originality/value

The analysis would appear to be the first to provide evidence and investigate the time to bank failure in the North Cyprus banking sector.

Citation

Gunsel, N. (2010), "Determinants of the timing of bank failure in North Cyprus", Journal of Risk Finance, Vol. 11 No. 1, pp. 89-106. https://doi.org/10.1108/15265941011012705