The activities of the foreign banks in the developing countries and their effects: An evaluation from the point of view of Turkey

The world financial system was reshaped by globalization and the developmentsin the communication technology in the last twenty five years. The banking system is anessential element in this increasingly interdependent global financial system as it plays acentral role for the international financial flows. Especially the banks in the developedcountries carried their operations to the international scale. These developments alsobrought about fierce competition among and declining profits for the these banks.Therefore, they started looking beyond their borders, towards the developing world, forgreater market share and lucrative profits. The intense competition forced the localbanks to increase the quality and variety of their services. Inefficient banking practicesand the lack of strong institutional structure in the sector enabled the leading banks toenter and influence the banking sector in the developing world. The concept of?efficiency? was and still is the prime concern for the banks operating in the developingcountries. In recent years, as a consequence of the increasing interest on ?how to workmore efficient?, the studies on ?efficiency? dramatically increased in the literature. Thepurpose of this study is to examine the Turkish banking sector from an ?efficiency?perspective and apply the data envelopment analysis method on the banking sector inTurkey by grouping the banks according to their ownership structures. The main findingof this study suggests that foreign banks are the most efficient banks in the sector,followed by state-owned banks while the private banks are at the bottom of theefficiency list. The data also shows that the efficiency trends of foreign and local banksare similar despite the significant differences in their efficiency scores. This suggeststhat private and local banks effect each other and are both prone to the contextualfinancial and economic ebbs and flows.Keywords: Financial liberalization, foreign entry, banking efficiency, data envelopmentanalysis (DEA)