Altay, Osman2021-12-272021-12-272021Doğuş Üniversitesi Dergisi, 22 (2) 2021, 217-2351302-6739This study aims to examine the relationship between sovereign risk andfinancial performance of the Turkish banking industry in order to identify theinteraction channels between these two. To this end, financial data relating to theTurkish banking industry were analyzed based on the CAMELS rating system andwere compared with Turkey’s Credit Default Swap rates using the most appropriatecausality analysis tools. The results showed that there are significant causal relationsbetween sovereign risk and several banking industry indicators of CAMELS ratinggroups. Significant results were obtained especially as to the causalities betweensovereign risk and CAMELS components, which are Capital Adequacy, AssetQuality, Liquidity, and Sensitivity. Empirical study indicates that 13 variables out 26variables have causal relationship with credit default swap rates according to Todaand Yamamoto Granger non-causality test results. Although the directions of causalityvary among these variables, those results, which indicate influence of credit defaultswap rates on banking performance indicators, are remarkable.enFinanceBankingRiskGranger CausalityArticle