Banking sector restructuring: Performance trends in commercial banks (2001-2004 Turkish experience)

Banking sector in Turkey plays a strategic role in the money and capital markets.To facilitate economic growth and reduce the risk of financial crises, efficiency andsoundness of banking system are very crucial for Turkish economy.The Turkish banking sector has gone through a massive restructuring processduring the period of 2001-2004. The overall objective of this study is to evaluate thefinancial, efficiency and productivity performances of banking sector during therestructuring program.In the first chapter, I review the literature on financial crises to identify commoncharacteristics of banking crises, and to analyze major factors that led up to recentcrises in the Turkish Banking Sector.In the second chapter, the Banking Sector Restructuring Program is examined interms of strategies and the implementation issues in the theoretical framework and inthe Turkish context.In the last chapter, the study estimates several measures of efficiency of bankingsector for the period of 2001-2004, by using the nonparametric Data EnvelopmentAnalysis. To asses the total factor productivity, Malmquist index is used. Alsorelationship between efficiency measures and selected financial ratios is investigated.The main finding of the study is that there is no evidence of significantefficiency gains with respect to technical, pure technical, cost, and allocativeefficiencies over the period.Other findings of the study are: (1) major source of technical inefficiency inTurkish banking system is scale inefficiency rather than pure technical inefficiency, (2)cost inefficiency is due to allocative inefficiency, (3) the sector suffers mainly fromscale inefficiency and scale inefficiency, in turn, is due to decreasing return to scale, (4)there are differences in the efficiency performance of commercial banks with differentownership structures as well as bank size, (5) there is a productivity gain in 2001-2004period, which was mainly attributable to technical progress rather than efficiencyincreases, (6) there is an association among the efficiency measures and financial ratios.