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Market Disciplining Role of Crises on The Restructuring of the Turkish Banking Sector

  • Ahmet Faruk Aysan
  • Sanli Pinar Ceyhan

This paper aims to find the productivity change in the banking sector between 1990 and 2006, with an emphasis to the period after 2001 crisis during which the Turkish banking system experienced a structural change. Using DEA, we find the Malmquist TFP Change Index and its mutually exclusive and exhaustive components of efficiency and technological changes over time. Additionally, we further decompose the technical efficiency change into pure technical and scale efficiency changes. The productivity of the banking sector is found out to have increased, the main reason being technological improvement rather than efficiency increase. For the cases of productivity decline, however, the changes come from the efficiency side rather than technology. An analysis with respect to the ownership status revealed that foreign banks were the most efficient group until 2001 after which state banks captured the first place. We attribute this change to the inflation accounting practice as well as better management of state banks with less political intrusion. The analysis with respect to bank size reveals that before 2000, the most efficient bank group was the medium-scale banks (the banks mainly purchased by foreign banks) followed by small banks while the efficiency scores converged after 2001.

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Paper provided by Bogazici University, Department of Economics in its series Working Papers with number 2007/18.

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Date of creation: 2007
Date of revision:
Handle: RePEc:bou:wpaper:2007/18
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  1. Ilko Naaborg & Bert Scholtens & Jakob de Haan & Hanneke Bol & Ralph de Haas, 2004. "How Important are Foreign Banks in the Financial Development of European Transition Countries?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 3(2), pages 99-123, August.
  2. Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004. "Bank performance, efficiency and ownership in transitition countries," BOFIT Discussion Papers 7/2004, Bank of Finland, Institute for Economies in Transition.
  3. Isik, Ihsan & Hassan, M. Kabir, 2002. "Technical, scale and allocative efficiencies of Turkish banking industry," Journal of Banking & Finance, Elsevier, vol. 26(4), pages 719-766, April.
  4. Canan Yildirim, 2002. "Evolution of banking efficiency within an unstable macroeconomic environment: the case of Turkish commercial banks," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2289-2301.
  5. Oulton,Nicholas & O'Mahony,Mary, 1994. "Productivity and Growth," Cambridge Books, Cambridge University Press, number 9780521453455, October.
  6. Isik, Ihsan & Kabir Hassan, M., 2003. "Financial deregulation and total factor productivity change: An empirical study of Turkish commercial banks," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1455-1485, August.
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