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Risk Incorporation and Efficiency in Emerging Market Banks During the Global Crisis: Evidence from Turkey, 2002-2009

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  • E. Nur Ozkan Gunay

Abstract

This study focuses on the efficiency measures of deposit banks operating in Turkey following the twin crises of 2000 and 2001 and applies a new approach in bank efficiency analysis by incorporating credit risk as an undesirable by-product in a multi-output model. Data envelopment analysis is used to assess the long-term performance trend in the context of balance sheet and revenue approaches. Empirical results indicate that the efficiency of deposit banks improve significantly in the restructuring period. The global crisis does not seem to have had a significant impact on managerial efficiency in the deposit banks operating in Turkey. The most striking finding is that the efficiency scores are much lower when nonperforming loans are incorporated as an undesirable output in the model. This shows that all efficiency studies in the literature that ignore undesirable output overestimate efficiency scores.

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  • E. Nur Ozkan Gunay, 2012. "Risk Incorporation and Efficiency in Emerging Market Banks During the Global Crisis: Evidence from Turkey, 2002-2009," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S5), pages 91-102, November.
    • Handle: RePEc:mes:emfitr:v:48:y:2012:i:s5:p:91-102
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    2. Mustapha A. Akinkunmi, 2017. "Regulatory Impact of Bank Performance in Nigeria: Application of Stochastic Frontier Analysis," Applied Economics and Finance, Redfame publishing, vol. 4(4), pages 32-43, July.
    3. Wanke, Peter & Tsionas, Mike G. & Chen, Zhongfei & Moreira Antunes, Jorge Junio, 2020. "Dynamic network DEA and SFA models for accounting and financial indicators with an analysis of super-efficiency in stochastic frontiers: An efficiency comparison in OECD banking," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 456-468.
    4. Hakan Güneş & Dilem Yıldırım, 2016. "Estimating Cost Efficiency of Turkish Commercial Banks under Unobserved Heterogeneity with Stochastic Frontier Models," ERC Working Papers 1603, ERC - Economic Research Center, Middle East Technical University, revised Mar 2016.

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