The effects of foreign entry to domestic banks? productivity in banking system

This study presents the productivity analysis of deposit banks operating in Turkey for a 6-year period covering 2002-2007. In the study, input oriented approach is used and the changes in the productivity under the assumption of variable returns on scale by using Data Envelopment Analysis method. As there is no consensus on what are the inputs and outputs of the banking sector, all of production, intermediation and profitability approaches are considered. The results of analysis were evaluated in banking sector and bank groups basis.The main finding of this study showed that, according to production and profitability approaches, state-owned banks are the most efficient banks in the sector. On the other hand, according to intermediation approach, foreign banks are the most efficient banks in the sector. The data also shows that the productivity trends of foreign and local banks are similar in their productivity scores. This suggests that private and local banks effect each other and they give similar reactions banking sector conditions due to competitive challenges.