Structural Change and the Efficiency of Banking In Turkey: Does Ownership Matter?

In a period of increasing foreign bank entry, the popular question of “what does foreign bank entry bring to the Turkish banking sector?” can partly be answered with respect to the productivity effects. This paper aims to find the productivity change in the banking sector between 1990 and 2007 just before the global crisis. We are especially interested in the period beginning with 2001 after which the Turkish banking system has almost been flooded with foreign banks. Using a sample of 20 commercial banks, we attempt to find the Data Envelopment Analysis (DEA) type Malmquist Total Factor Productivity Change Index over the specified period. We also look at the source of this change decomposing this index into its mutually exclusive and exhaustive components of efficiency change and technological change. Additionally, we further decompose the technical efficiency change into pure technical efficiency change and scale efficiency change. The DEA results guide us in comparing the performances of banks of different ownership status (state, private and foreign banks) and of different size