CAMELs-DEA in Assessing the Role of Major Factors in Achieving Higher Efficiency Levels: Evidence from Turkish Banks

This study explores the efficiency of Turkish banks under unconventional central bank monetary policies, a departure from studies in developed economies using CAMEL ratings. It introduces unique inputs and outputs distinct from those used in developed contexts. A notable contribution is the integrated CAMELS ratings-based data envelopment analysis, considering both desirable and undesirable variables. This integration results in a more realistic estimation of the overall system production possibility set, surpassing assumptions made by traditional CAMELS and DEA methods. The study reveals a significant relationship between Turkish bank efficiency, size, and type, with public capital deposit banks as well as banks with the highest number of branches displaying superior performance. The results show that non-performing loans (NPL), unemployment rates, government debt, exchange rates, and inflation rates have a meaningful impact on banking efficiency. Government debt and exchange rates have an inverse relationship with efficiency while the remaining variables are positively correlated. These findings in this study underline the potential for rising inflation to trigger financial instability, especially after abrupt and unforeseen inflation spikes. This study enhances our understanding of inflation's macroeconomic implications and its impact on the banking sector.