Date

2011-01-09

Author

Danışoğlu, Seza

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Since the mid-1990s, a number of studies have been conducted that analyze the profitability and cost structure of Turkish banks by using different research methodologies. Due to the advances in modeling techniques during the 2000s, it is now possible to address the same issues in a more detailed and rigorous manner. The main objective of this study is to conduct an analysis of profitability and cost in the Turkish banking sector by using data between 1960 and 2009. The particular data set that is to be used in this study makes it possible to examine the issue of profitability and cost over a much longer time period compared to previous studies. The first step in the study involves the estimation of profit and cost efficiencies by using the stochastic frontier approach. This part of the study presents the changes that took place in the profit and cost efficiency of Turkish banks since the 1960s. The results in this part of the study also make it possible to make efficiency comparisons between banks with different institutional characteristics, such as state-owned versus private banks and Turkish versus foreign banks. The stochastic frontier approach creates an X-efficiency score for each sample bank analyzed. This score is calculated by comparing a specific bank’s profit or cost performance against the “best practice” performance determined based on the performances of all banks in the sample. The stochastic frontier approach also generates an “inefficiency” score for each bank based on the same “best practice” guideline. So, for instance, while the “cost efficiency” score of a bank measures how closely that bank performs with respect to the best cost practice in the sample, the “cost inefficiency” score measures the deviation of a bank’s cost performance from the best practice guideline. The same efficiency and inefficiency scores can also be calculated for the profit performance of a sample bank. In the second part of the study, a profitability model is estimated for the Turkish banks and traditional industrial organization hypotheses, such as “collusion” versus “efficiency” are tested. One of the independent variables in this profitability model is the efficiency scores that are calculated in the first part of the study. The previous studies on the Turkish banking sector that ask a similar research question and adopt a similar methodology mostly focus on the cost inefficiency of banks in the market. For instance, the study by Oral and Yolalan (1990) uses the non-parametric data envelopment method and presents results based on a case study conducted about a one sample bank. Later, Zaim (1995) uses the same method and concludes that the Turkish commercial banks benefited from the financial liberalization environment during the 1981-1990 period and experienced increases in their technical and distributional efficiencies. Contrary to these findings, Denizer et al. (2000) utilize a similar methodology and present evidence that there has been a decline in the efficiency of Turkish banks following the market changes that came as a result of financial liberalization. One of the first studies on Turkish banks that use a stochastic cost estimation approach is by Altunbaş and Molyneux (1994). In this study, the analysis results suggest that there is no difference between state-owned and private commercial banks in terms of their cost inefficiencies. Denizer’s 1997 study, on the other hand, shows that, as of 1990, Turkish banks are at least five times more profitable when compared to their peers in the other OECD countries. In a more recent study, Işık and Hassan (2002) employ both parametric and non-parametric methods and analyze the Turkish banks in terms of their distributional, technical, cost and profit efficiencies. Their results imply that the main source of inefficiency for Turkish banks during the 1988-1996 period is not the distributional but technical inefficiency. The succeeding studies by Kasman (2002 and 2005) provide evidence that the Turkish banks enjoy scale efficiencies. Interestingly, the same studies show that although during the 1981-1990 period most banks have experienced an improvement in their efficiencies, there has been no improvement in the bank efficiencies during the following 10 years. When the literature on the Turkish banks is reviewed, it is seen that most studies analyze either the cost or the profit efficiency of banks. However, these two types of efficiencies are closely related to each other and if they are analyzed together, a more complete picture can be constructed regarding the efficiency of Turkish banks. Moreover, the previous studies mostly use a sample period that goes back as far as the 1980s. The current study proposes to use data that cover approximately five decades and go back as far as the 1960s.

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https://hdl.handle.net/11511/86828
http://www.aidea2013.it/docs/368_aidea2013_banking-and-finance.pdf

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Department of Business Administration, Conference / Seminar