Financial liberalization and banking efficiency: evidence from Turkey

Abstract

This paper examines the banking efficiency in a pre- and post-liberalization environment by drawing on the Turkish experience by using DEA. The paper also investigates the scale effect on efficiency. Our findings suggest that liberalization programs were followed by an observable decline in efficiency. Another finding of the study is that the Turkish banking system had a serious scale problem during the study period. The second part of our analysis relied on econometric methods and found that one major reason for such system-wide efficiency decline has been the growing macroeconomic instability of the Turkish economy in general and financial sector in particular. Copyright Springer Science+Business Media, LLC 2007Banking, Efficiency, Liberalization, Data envelopment analysis, C14, C61, G21, G28,

Financial development, financial liberalization and social capital

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“…These new entrants focussed largely upon trade and corporate finance activities (Isik and Hassan, 2003b). There is evidence that the banking sector became more efficient in the wake of the market liberalisation (Zaim, 1995, Isik and Hassan, 2002, Isik and Hassan, 2003b, however it has also been argued that efficiency improvements were not consistent over time (Denizer et al, 2007). The economic transition has not been without problems (Rodrik, 1990, Sönmez, 2011, neither has the pace or focus of change been steady.…”

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