Analysis of Ethical Bankingin Turkiye

Abstract

urpose: Social finance has increasingly been discussed in recent years as a potential remedy for socio-economic issues such as wealth inequality, economic crises, and poverty created by capitalism. In response to these challenges, ethical banking institutions have emerged in developed Western economies, whereas in Eastern contexts, Islamic finance has underscored its social as well as economic functions. Core components of social finance - including sustainability, corporate social responsibility, and environmentally oriented projects - have contributed to strengthening public trust in the banking sector. This primary purpose of this study is to assess the social finance and ethical banking practices observed in developed countries and to evaluate their relevance for participation banks in Türkiye.

Methodology: The study begins by conceptualizing social finance and ethical banking first. It then conducts a comparative analysis of the financial ratios of conventional banks and participation banks using analysis of variance, drawing on the conceptual parallels between Islamic banking (referred to as "participation banking" in Türkiye and ethical banking practices. Finally, regression analysis is employed to examine profitability and crisis-period volatility.

Findings: The variance and regression analyses indicate that participation banks operate according to a fundamentally different business model from that of conventional banks. The findings demonstrate that participation banks pursue objectives aligned with social finance rather than prioritizing profitability alone. Moreover, the results confirm that participation banks exhibit lower volatility during economic crises and embody core principles of ethical banking through their relative institutional stability.

Originality: This study constitutes the first comprehensive, and quantitative investigation of ethical banking within the Turkish context and provides empirical evidence that participation banks engage in practices consistent with ethical banking principles. In the light of the existing global literature on ethical banking, the study offers an academically significant contribution to the understanding and development of Turkish banking sector.