Panel stochastic frontier analysis of profitability and efficiency of Turkish banking sector in the post crisis era/Turkijos banku sektoriaus veiklos pelningumo ir efektyvumo analize pokriziniu laikotarpiu.

Aysan, Ahmet Faruk ; Karakaya, Mustafa Mete ; Uyanik, Metin 等

1. Introduction

November 2000 and Februar y 2001 crises adversely affected Turkish economy and particularly Turkish banking sector. In the post-crisis period, extensive structural changes have taken place in Turkish banking sector. Interest of foreign banks for the Turkish market increased. Some new foreign banks entered into Turkish banking sector through acquisition, while existing foreign banks increased their operations. Foreign banks are expected to bring new practices and advance technology to the market and enhance competitive pressure in banking. Throughout 1990s Turkey experienced very high interest rates and accumulated huge debt stock surpassing Gross National Product. Consequently banks did not perceive any need to operate more efficiently given that they could earn enormous returns through financing government. In the post-crisis period, inflation, interest rates and debt stock started to decline. Eventually banks felt the need to rely more on essential banking activities to make more profit. Hence they had to operate more efficiently. As a result of these changes Turkish banks experienced profound transformations in their cost and profit efficiencies. These developments in cost and profit efficiencies shall have implications for the profitability of banks.

In this paper, we investigate the cost and profit efficiencies of Turkish banking sector in the post-crisis era by employing panel stochastic frontier approach. Our data set spans 2002-2007 period just before the global crisis. We further divided this period into 2 sub-periods as 2002-2005 (period of recovery and merger activities) and 2005-2007 (period of growth and acquisition by foreign banks). According to our knowledge there are studies that employ stochastic frontier approach, but this is the first study that employs panel stochastic frontier approach to analyze the efficiency of Turkish banking sector for this period. Panel data has various advantages which significantly improve efficiency analysis compared to previous studies. Moreover we explore the relation between efficiency, size and profitability. Finally state banks are quite dominant in the banking industry in Turkey. Therefore we conduct the same analysis by excluding the state banks to implement sensitivity analysis.

In this paper we address the following questions: How does efficiency change over time? Is there a substantial efficiency improvement? Does the foreign banks prefer to buy more efficient banks? Is there efficiency gain in the banks acquired by the foreign banks? Is there a relation between profitability, efficiency and size?

The rest of the paper progresses as follows: Section 2 reviews the efficiency literature in banking sector and provide an overview of Turkish case in the post crisis period. Section 3 defines the data and explains the methodology and advantages of our model. Section 4 discusses the empirical results of efficiency and its relationship with size and profitability. Lastly section 5 concludes.

2. Literature review and Turkish case in retrospect

During the crisis period in Turkey, the banks which did not employ risk management techniques effectively had maturity and currency mismatch problems in their assets and liabilities. As a result of crises, interest rates increased sharply and Turkish currency rapidly lost value against other currencies. Hike in the interest rates especially hits the banks that had maturity mismatch problem in their portfolios. As a result of the increase in the interest rates, the assets of these banks also rapidly lost value and maturity mismatch in their portfolios did not allow the value of their liabilities to decrease by the same amount. Interest rates in domestic currency was higher than the interest rates in foreign currency. Therefore most of the banks had short position in foreign currencies and long position in Turkish currency. In fact, before the crisis most of the Turkish banks had both currency and maturity mismatch problems in their portfolios. Furthermore contraction in economic activities engendered the rise in bad debt of banks.

In the aftermath of the devastating crises, Turkish banks were in a very uneasy situation. They made huge losses and some of them were on the edge of bankruptcy. As in many other developing countries, in Turkey banks are main financial intermediaries which channel saving into investment. This gives banks a major role in the capital accumulation and growth. Turkey urgently needed less fragile financial sector for consistent growth and economic prosperity. Hence Turkey initiated Banking Sector Reconstruction Program on May 15, 2001 to establish a competitive and healthy banking sector (see Al, Aysan 2006). In the scope of Banking Sector Reconstruction Program, capital structure of banks were strengthened, merger and acquisition activities encouraged. Furthermore Treasury helped the banks to close their short positions in foreign currencies while regulation and legislation were improved.

In 2001, Ulusal Bank, Sitebank, Iktisat Bankasi, Kentbank, Tarisbank, Bayindirbank, EGS Bank and Toprak Bank are all acquired by Saving Deposit Insurance Fund (TMSF). Seven banks were merged. Egebank, Turkbank, Yasarbank, Bank Kapital, Ulusal Bank merged under Sumerbank and Interbank, Esbank merged under Etibank. Moreover licenses of Etibank, Iktisat Bankasi and Kentbank are cancelled. Also in private sector several banks engaged in merger and acquisition activities. Bank Ekspres merged with Tekfen Yatirim ve Finansman and constitute Tekfen Bank. Demirbank was acquired by HSBC. Korfez Bank, Osmanli Bankasi, Sumerbank, Sinai Yatirim Bankasi were transferred to Osmanli Bankasi, Garanti Bankasi, Oyakbank and Turkiye Sinai Kalkinma Bankasi respectively.

In 2002, number of banks, branches and employees were reduced for financial and operational recovery. Number of banks decreased from 61 (end of 2001) to 54 (end of 2002). Number of branches decreased by 9.7 percent. Number of employees decreased by 10.8 percent (see Table 1).

In 2003, world economy and in particular Turkish Economy started to recover itself compared to stagnation period of 2001 and 2002. Especially after the general elections in November 2002 and Copenhagen Summit about Turkey's efforts for full membership to European Union (1) in December 2002, Turkey's economic and political recovery has accelerated while uncertainties ameliorating and expectations about Turkish economy improving. As a result of these changes and decrease in nominal interest rates, Turkish banking sector reach healthier asset-liability structure. Number of banks decreased from 54 (end of 2002) to 50 (end of 2003). In the same period, number of branches decreased by 2.2 percent and asset size per branch increased. On the other hand number of employees did not changed much (see Table 2).

In 2004, the recovery in the world economy continued. The growth rate of the world economy increased and reached 5.1 percent compared to 4 percent in 2003. In the same year Turkey's performance was even better due to the political stability and successful structural transformation projects and macroeconomic policies. Turkey's GNP and GNP per capita in dollars grew by 9.3 percent and 23 percent respectively. Inflation rate of Turkey was 9.3 percent lowest since 1970. In December 2004 EU decided to initiate membership negotiations with Turkey, starting in September 2005. The number of banks in the sector declined to 48. Two foreign banks, Credit Lyonnais S. A. and Credit Agricole Indosuez Turk Bank merged. Two domestic banks, T. Halk Bankasi and Pamukbank were also merged. Deutsche Bank A. G. changed its status from development and investment bank to foreign bank. Due to the growth in the sector, number of branches and employees increased as well (see Table 3).

In 2005, world economy was stable and grew by 4.3 percent. In Turkey, main macroeconomic indicators continue to improve. GNP increased by 7.6 percent and the inflation rate was 7.7 percent which was even lower than the inflation rate in 2004. Number of banks decreased by 1 to 47 due to the new mergers while number of employees and branches increased.

After 2005, Turkish banking sector is on a stable growth path. Overall, total assets, number of branches and number of employees of the banking sector keep increasing. Actually one can divide the post-crisis period into two sub-periods before 2005 and after 2005. Pre-2005 episode was the recovery and stabilization period. There was a lot of merger activities. On the other hand, post-2005 can be called as the growth period. The new period is shaped by acquisition activities done by foreign banks.

BNP Paribas (French) acquired Turk Ekonomi Bankasi in February 2005. Fortis (Holland-Belgium) acquired Diebank on April 11, 2005. General Electric bought 25.5 percent of the Garanti Bankasi on August 24, 2005. Unicredit (Italian) and Koc Holding (Turkish) together acquired Yapi Kredi on September 28, 2005. Hapoalim (Israel) acquired C Bank and named Bank Pozitif on December 14, 2005. National Bank (Greece) bought 47 percent of Finans Bank on April 3, 2006. EFG Eurobank (Greece) acquired Tekfenbank on May 8, 2006. Dexia (French-Belgium) acquired Denizbank on May 30, 2006. Turan-Alem (Kazakhstan) bought 33 percent of [section]ekerbank on June 22, 2006. Merrill Lynch acquired Tat Yatirim Bankasi on August 31, 2006. Arab Bank (Jordan) and BankMed (Lebanon) acquired MNG Bank and changed its name as Turkland on September 4, 2006. Citibank bought 20 percent of Akbank on October 17, 2006. Anadolu Group and Alpha Bank (Greece) acquired Abank on November 24, 2006. ING (Holland) acquire Oyak Bank on June 19, 2007 (see Annual Reports 2001-2006 of Banking Regulation and Supervision Agency).

In a very short period of time, foreign share in the banking sector increased. According to the data of Central Bank of Turkey and Banking Regulation and Supervision Agency foreign share in banking sector reached 25 percent. This ratio is much higher compared to 7.3 percent foreign share in March 2001.

There is a growing literature that investigates possible effects of foreign entry into the banking sector. Bonin et al. (2005) and Levine (2001) suggest that foreign banks increase efficiency of the banks by improving corporate governance. Moreover domestic banks acquired by foreign banks are upgraded by international rating agencies (Cardenas et al. 2003). Usually foreign banks bring new financial products and services, which enhance competition. Berger et al. (2000) show different results in the case of developed and developing countries about efficiency of foreign banks. Results suggest that foreign banks are more efficient in terms of cost and profit in developing countries and less efficient in developed countries compared to the domestic banks. Aysan and Ceyhan (2007) investigate the reasons for foreign bank entry in the light of push and pull factors. They suggest that Turkey's location (intersection of Europe and Middle East) increasing population and per capita income and EU accession process are the factors attracting foreign banks to invest in Turkey2. This literature reveals that foreign bank entry has effects on bank efficiency and structure. Hence it is quite interesting to analyze the period after the acceleration of foreign bank entry into Turkey.

There is also considerable literature on the relation between efficiency and profitability (3). Turati (2003) analyzed this relation by examining correlation coefficient which he computed between efficiency scores and profitability. Abbasoglu et al. (2007) explore efficiency of Turkish banking sector and its relation with profitability. They found no robust relation between efficiency and profitability. There are also some studies that compares the efficiency of domestic and foreign banks. For example Isik and Hassan (2002a) analyzed efficiency of Turkish banking sector by Data Envelopment Analysis (DEA). They found that foreign banks are not more efficient than domestic banks.

3. Data and the empirical models

3.1. Data and definitions of variables

We use the quarterly panel data of the all commercial banks of Turkey for the period 2002Q4-2007Q2. The data are taken from the Banks Association of Turkey (BAT). There are 32 banks of which 3 are state banks, 13 are domestic banks, and 16 are foreign banks. We use two distinct dependent and seven independent variables consisting of four outputs and three inputs. Dependent variables are total cost (tc) and profit (p), or net income; and independent variables consist of outputs which are short term commercial loans (y1), long term commercial loans (y2), off balance sheet items (y3), and other earning assets (y4); and of inputs which are price of labor (p1), price of capital (p2), and price of funds (p3). Price of labor is the total expenditures on personnel and services, price of capital is total expenditures on physical capital divided by the book value of fixed assets and price of funds is total interest expenses divided by total funds borrowed. These variables are commonly used in the cost and profit efficiency of the banking sector literature (4). Hence, we choose these variables in our study. As a measure of profitability we use two different measures return on asset and return on equity (see Table A.4 and Table A.5). Book value is taken as a measure of size.

3.2. Measure of efficiency, profitability, size and methodology

We can calculate efficiency by using either non-parametric (originating from operations research) or parametric approaches (econometric approaches). In a nonparametric (non-stochastic) approach like Data Envelopment Analysis efficiency is calculated by linear mathematical programming techniques. Parametric (stochastic) efficiency is calculated via a cost or profit function in which variables are costs or profits determined by input prices, quantities of variable outputs, random error and inefficiency. In our study, we use parametric approaches because of its two main advantages. In parametric approaches inefficiency is separated from statistical noise and we can use standard statistical tests on the variables to test their significance (Farsi, Filippini 2004). On the other hand non-parametric approaches do not allow this kind of statistical inference (Isik, Hassan 2002b).

In this study we calculate cost and profit efficiency following the paper of Isik and Hassan (2002b). Cost inefficiency is caused by using sub-optimal input combinations on a given output level while profit efficiency stems from using sub-optimal output level given the input and output prices. In other words cost efficiency shows how far a bank's cost is away from the bank that shows best performance if they produce under same conditions and same level of output. Profit efficiency shows how much bank is close to the highest amount of profit for its given level of output.

In this research we estimate both cost and profit frontier by time invariant panel stochastic frontier approach. We discuss the benefits of this approach over regular stochastic frontier models after introducing the model as follows:

Cost Frontier Model

[lntc.sub.it] = f ([y.sub.lit], [p.sub.kit]) + [[mu].sub.1i] + [v.sub.1it], [[mu].sub.1i] [greater than or equal to] 0.

Profit Frontier Model

In ([alpha] + [[pi].sub.it]) = f ([y.sub.lit], [p.sub.kit]) + [[mu].sub.2i] + [v.sub.2it], [[mu].sub.2i] [greater than or equal to] 0,

i = 1, 2, ..., N and t = 1, 2, ..., T,

l = 1, 2, 3, 4 and k = 1, 2, 3.

In these equations [tc.sub.it] stands for total cost, [[pi].sub.it] stands for profit, [[gamma].sub.fit] stands for output, [[rho].sub.kit] stands for input, i indicates the bank, t indicates the time, l indicates the output, k indicates the input and [[upsilon].sub.it] is a classical error term that follows a symmetric normal distribution. It is assumed that [[mu].sub.ji] follows truncated half normal distribution and [[upsilon].sub.jit] is independent of [[mu].sub.i], for j = 1, 2. Translog specification is employed in modeling both cost and profit function. In the empirical literature on bank efficiency translog specification is widely used. This functional form has various advantages, one of them is its flexible form which allows us to use Cobb-Douglas specification. Resulting 4 output, 3 input models for a given ith firm are as follows.

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII].

Lastly we look at the advantages of panel data over cross sectional data in efficiency estimation. Schmidt and Sickles (1984) discuss the main advantages of panel data. Firstly there is no need to impose distributional specification on the efficiency term for consistent estimations. Secondly one can relax the assumption that inefficiency and input levels are independent. Moreover technical efficiency can not be consistently estimated in a single cross section, because its results heavily rely on distributional assumption on inefficiency (5).

4. Empirical results

4.1. Cost and profit efficiency change

There are two important observations. There is a clear cost efficiency gain in Turkish banking sector in this period. Mean of efficiency scores increased from 0.74 to 0.91. One can also observe convergence in terms of cost efficiency. Standard deviation of cost efficiency scores declines from 0.06 to 0.04 (see Table 4 and Table A.1).

Apparently, profit efficiency roughly declines. However this can be attributed to the increased standard deviation between these two periods. Hence, in terms of profit efficiency divergence instead of convergence is the pattern. Recent developments in Turkey increased competition in the banking sector. Competition lowers the excess profits, which can affect profit efficiency.

When we look at the cost efficiencies of the banks for the period 2002-2005, the most cost efficient bank is AKB, whereas the least one is HBB. Among the highest ten cost efficient banks, all three of the state bank are included, only one of them is foreign banks, and the remaining six are domestic banks. Beside the banks that have the worst cost efficiency appear as follows: three are domestic banks, and the remaining seven are foreign banks. Hence, the overall cost efficiency of foreign banks is poorer in the period 2002-2005, whereas the state banks and domestic banks have better cost efficiencies.

Looking at the period 2005-2007, the highest ten cost efficient banks consist of two state banks, five domestic banks and three foreign banks. Lowest cost efficient banks that have least cost efficiency consist of two domestic banks, and eight foreign banks. In this period, again, foreign banks did worse in terms of cost efficiency, but they are better than their rankings in the former period. The efficiency of state banks remains almost same given that efficiency of TCZB declines whereas efficiency of THB increases almost the same amount. Furthermore the ranking of the overall cost efficiency of the domestic banks converges to median since the share of the domestic banks in least ten and highest ten declines.

For the overall cost efficiency ranking, in the 2002-2007 period, the state banks and the domestic banks are the most efficient, and foreign banks did the worst. All state banks are among the highest ten cost efficient banks, whereas nine of the least ten cost efficient banks are foreign banks. Beside domestic banks are almost above the median. Profit efficiency rankings of the groups of the banks are more homogeneous than the cost efficiency ranking. In the first period, 2002-2005, foreign banks were dominant among the highest ten profit efficient banks: five foreign banks, four domestic banks and only one state bank. On the other hand, in the second period the domination of the foreign banks is more apparent: eight foreign banks, and two domestic banks. State banks did worse in terms of profit efficiency compared to their cost efficiency ranking. In both periods their rankings are about the median.

Our results do not indicate any evidence supporting the idea that international investors look for higher efficiency in their acquisition decisions. There are examples of banks that are inefficient but acquired. Banks that are acquired by foreign banks experienced efficiency increase. However in this period overall efficiency score of banking industry increases as well. In retrospect some of foreign banks experienced efficiency decline relative to other banks suggesting no clear-cut evidence in favor of efficiency improvement for the banks acquired by foreign banks (see Table 5).

Lastly according to our results profit efficiency and cost efficiency are not related. Cost efficient bank can be profit inefficient and profit efficient bank can be cost inefficient. However we observe in general that in the first and second period profit and cost efficiency are negatively related (see Table 5, Table 6 and Table A.3).

4.2. Efficiency, size and profitability

We use book value of banks as measure of size and return on asset (ROA) and return on equity (ROE) as measures of profitability. We run fixed effect regression with panel data of 64 observations to examine the relationship between efficiency and profitability (6). Our results do not suggest that there is a significant relation between cost efficiency, profit efficiency measures and profitability. We find however significant relationship between size and return on equity and return on asset suggesting that the size matters more for profitability in Turkey (see Table 7, Table 8 and Table A.2).

We also run random effect regression with the same panel data and add dummy for foreign banks and state banks. Generally these dummies are insignificant while other results are very similar. Goodness of fit of our regressions are quite good considering that most of actual observations are in the confidence interval of our regression fit (see Figs. 1-4).

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

[FIGURE 3 OMITTED]

[FIGURE 4 OMITTED]

4.3. Sensitivity analysis

Turkish banking sector is known as state dominated sector. Although there are few state banks, their size is large. We conduct the same analysis to see the sensitivity of our results to the state owned banks. The findings show that our results are insensitive to the exclusion of state banks. Correlation between efficiency scores from the results of the analysis with the state banks and without the state banks are all more than 99 percent (see Table 9, Table A.6, Table A.7 and Table A.8). Furthermore we do not find a significant relation between efficiency and profitability which confirms our earlier results.

5. Conclusions

In this paper, we analyze cost and profit efficiency of Turkish banking sector in the post crisis era (2002-2007) by employing Panel Stochastic Frontier Approach for the first time in Turkish banking efficiency literature. Moreover we investigate the relation between efficiency, size and profitability. In our analysis we further divide the period 2002-2007 into 2 sub-periods as 2002-2005 and 2005-2007. 2002-2005 period characterized by contraction, recovery and merger in the banking sector. On the other hand 2005-2007 is the period of growth and acquisition by foreign banks.

The results of our study reveal that there is an increase in the cost efficiency in addition to convergence in the cost efficiency of banks. This finding shows that banks in Turkish market easily adopt new practices which enhance efficiency. When one bank discovers ways to increase its efficiency or a new more efficient bank enters into Turkish market other banks quickly imitate better technology. We also find that foreign banks including new entrants are less efficient. Our results also show that state banks are more efficient. The results about state banks and foreign banks are quite interesting for the literature while they are in congruent with prior studies in Turkish banking sector.

We can not necessarily claim that banks acquired by foreign banks are more efficient banks. In the sample of banks acquired by foreign banks, there are efficient and inefficient banks. Efficiency of the banks acquired by foreigners increased. However there is an overall efficiency increase in this period anyway suggesting that these banks have relatively not performed better. We also analyze the relation between cost-profit efficiency, size and profitability by both fixed effect and random effect regressions. According to our results there is no significant relation between efficiency and profitability. However there is a positive relationship between efficiency and size. However we find significant relationship between size and profitability. Lastly we examine the sensitivity of our results for the exclusion of state owned banks. We conduct the same analysis by excluding the state owned banks. The findings confirm that our results are not sensitive to the exclusion of state owned banks.

doi: <DO>10.3846/16111699.2011.599411</DO>

APPENDIX

Table A.1. Descriptive Statistics

                       Mean        Median         Max

Cost Efficiency       0.7470       0.7347        0.8954
2002-2007

Cost Efficiency       0.7353       0.7343        0.8734
2002-2005

Cost Efficiency       0.9053       0.9217        0.9468
2005-2007

Profit Efficiency     0.8128       0.8237        0.8467
2002-2007

Profit Efficiency     0.5965       0.5941        0.6226
2002-2005

Profit Efficiency     0.3591       0.3010        0.6198
2005-2007

ROA 2002-2005         0.2775       0.1778        2.1017

ROA 2005-2007         0.3253       0.2365        1.9175

ROA 2002-2007         0.2985       0.1654        2.0211

ROE 2002-2005         0.0741       0.0694        0.2442

ROE 2005-2007         0.0647       0.0938        0.1900

ROE 2002-2007         0.0691       0.0863        0.2147

SIZE 2002-2007       601617.4     117219.0     4949542.0

SIZE 2002-2005       596088.2     92929.1      5140583.0

SIZE 2005-2007       601071.5     115624.8     4703918,0

                       Min       Std. Dev.    Observation

Cost Efficiency       0.6458       0.0827          32
2002-2007

Cost Efficiency       0.6502       0.0634          32
2002-2005

Cost Efficiency       0.8367       0.0383          32
2005-2007

Profit Efficiency     0.7575       0.0275          32
2002-2007

Profit Efficiency     0.5800       0.0126          32
2002-2005

Profit Efficiency     0.1552       0.1690          32
2005-2007

ROA 2002-2005        -0.3718       0.4556          32

ROA 2005-2007        -0.3967       0.4995          32

ROA 2002-2007        -0.3827       0.4610          32

ROE 2002-2005        -0.2291       0.0877          32

ROE 2005-2007        -0.2641       0.0989          32

ROE 2002-2007        -0.1893       0.0854          32

SIZE 2002-2007       2202.10     1151396.0         32

SIZE 2002-2005       2198.90     1209261.0         32

SIZE 2005-2007       2206.10     1086974.0         32

Source: Authors' calculation

Table A.2. The Correlation Matrix

                       Cost          Cost          Cost
                    efficiency    efficiency    efficiency
                     2002-2007     2002-2005     2005-2007

Cost Efficiency          1           0.88          0.44
2002-2007

Cost Efficiency        0.88            1            0.3
2002-2005

Cost Efficiency        0.44           0.3            1
2005-2007

Profit Efficiency      0.49          0.42          0.95
2002-2007

Profit Efficiency      -0.34         -0.3          -0.47
2002-2005

Profit Efficiency      -0.34         -0.23         -0.83
2005-2007

ROA 2002-2005          0.02          -0.14         -0.14

ROA 2005-2007          0.12          -0.04         0.03

ROA 2002-2007          0.07          -0.1          -0.06

ROE 2002-2005          0.36          0.15           0.2

ROE 2005-2007          0.21          0.12          0.49

ROE 2002-2007          0.31          0.14          0.39

SIZE 2002-2007         0.63          0.51          0.04

SIZE 2002-2005         0.58          0.47          -0.01

SIZE 2005-2007         0.65          0.53          0.08

                      Profit        Profit        Profit
                    efficiency    efficiency    efficiency
                     2002-2007     2002-2005     2005-2007

Cost Efficiency        0.49          -0.34         -0.34
2002-2007

Cost Efficiency        0.42          -0.3          -0.23
2002-2005

Cost Efficiency        0.95          -0.47         -0.83
2005-2007

Profit Efficiency        1           -0.58         -0.76
2002-2007

Profit Efficiency      -0.58           1           0.66
2002-2005

Profit Efficiency      -0.76         0.66            1
2005-2007

ROA 2002-2005          -0.23         0.49          0.36

ROA 2005-2007          -0.03         0.34          0.24

ROA 2002-2007          -0.14         0.43          0.31

ROE 2002-2005          0.11           0.2          0.02

ROE 2005-2007          0.48          0.06          -0.1

ROE 2002-2007          0.33          0.15          -0.04

SIZE 2002-2007         0.08          -0.18         -0.11

SIZE 2002-2005         0.02          -0.15         -0.09

SIZE 2005-2007         0.12          -0.17         -0.12

                        ROA           ROA           ROA
                     2002-2005     2005-2007     2005-2007

Cost Efficiency        0.02          0.12          0.07
2002-2007

Cost Efficiency        -0.14         -0.04         -0.1
2002-2005

Cost Efficiency        -0.14         0.03          -0.06
2005-2007

Profit Efficiency      -0.23         -0.03         -0.14
2002-2007

Profit Efficiency      0.49          0.34          0.43
2002-2005

Profit Efficiency      0.36          0.24          0.31
2005-2007

ROA 2002-2005            1           0.88          0.98

ROA 2005-2007          0.88            1           0.97

ROA 2002-2007          0.98          0.97            1

ROE 2002-2005          0.69          0.66           0.7

ROE 2005-2007          0.38          0.65          0.52

ROE 2002-2007           0.6          0.74          0.68

SIZE 2002-2007         -0.11         -0.14         -0.13

SIZE 2002-2005         -0.13         -0.17         -0.15

SIZE 2005-2007         -0.11         -0.12         -0.12

                        ROE           ROE           ROE
                     2002-2005     2005-2007     2002-2007

Cost Efficiency        0.36          0.21          0.31
2002-2007

Cost Efficiency        0.15          0.12          0.14
2002-2005

Cost Efficiency         0.2          0.49          0.39
2005-2007

Profit Efficiency      0.11          0.48          0.33
2002-2007

Profit Efficiency       0.2          0.06          0.15
2002-2005

Profit Efficiency      0.02          -0.1          -0.04
2005-2007

ROA 2002-2005          0.69          0.38           0.6

ROA 2005-2007          0.66          0.65          0.74

ROA 2002-2007           0.7          0.52          0.68

ROE 2002-2005            1           0.59          0.87

ROE 2005-2007          0.59            1           0.91

ROE 2002-2007          0.87          0.91            1

SIZE 2002-2007          0.1          -0.17         -0.06

SIZE 2002-2005         0.06          -0.24         -0.13

SIZE 2005-2007         0.13          -0.12         -0.02

                       SIZE          SIZE          SIZE
                     2002-2007     2002-2005     2005-2007

Cost Efficiency        0.63          0.58          0.65
2002-2007

Cost Efficiency        0.51          0.47          0.53
2002-2005

Cost Efficiency        0.04          -0.01         0.08
2005-2007

Profit Efficiency      0.08          0.02          0.12
2002-2007

Profit Efficiency      -0.18         -0.15         -0.17
2002-2005

Profit Efficiency      -0.11         -0.09         -0.12
2005-2007

ROA 2002-2005          -0.11         -0.13         -0.11

ROA 2005-2007          -0.14         -0.17         -0.12

ROA 2002-2007          -0.13         -0.15         -0.12

ROE 2002-2005           0.1          0.06          0.13

ROE 2005-2007          -0.17         -0.24         -0.12

ROE 2002-2007          -0.06         -0.13         -0.02

SIZE 2002-2007           1           0.99            1

SIZE 2002-2005         0.99            1           0.98

SIZE 2005-2007           1           0.98            1

Source: Authors' calculation

Table A.3. Banks

Banks                                       Code    Ownership

ABN AMRO Bank NV                            ABN      foreign
Akbank TAS                                  AKB      domestic
Alternatif Bank AS                          ALTR     domestic
Anadolubank AS                              ANDL     domestic
Arap Turk Bankasi AS                        ARTB     foreign
Banca di Roma SPA                           BDR      foreign
Bank Mellat                                 BNKM     foreign
Birlesik Fon Bankasi AS                     BFB      domestic
Citibank AS                                 CTB      foreign
Denizbank AS                                DNZB     domestic
Deutsche Bank AS                            DTCB     foreign
Finans Bank AS                              FNB      foreign
Fortis Bank AS                              FRB      foreign
Habib Bank Limited                          HBB      foreign
HSBC Bank AS                                HSBC     foreign
Kocbank AS                                  KCB      domestic
Millennium Bank AS                          MLB      foreign
Oyak Bank AS                                OYK      domestic
Societe Generale (SA)                       SCG      foreign
Sekerbank TAS                               SKRB     domestic
Tekfenbank AS                               TKF      foreign
Tekstil Bankasi AS                          TKS      domestic
Turkish Bank AS                             TRKS     domestic
Turkland Bank AS                            TRKL     foreign
Turk Ekonomi Bankasi AS                     TEB      domestic
Turkiye Cumhuriyeti Ziraat Bankasi AS       TCZB      state
Turkiye Garanti Bankasi AS                  TGB      domestic
Turkiye Halk Bankasi AS                     THB       state
Turkiye Is Bankasi AS                       TIS      domestic
Turkiye Vakiflar Bankasi TAO                TVB       state
WestLB AG                                   WLB      foreign
Yapi ve Kredi Bankasi AS                    YKR      domestic

Source: The Banks Association of Turkey

Table A.4. Profitability of the Banks

           ROA          ROA          ROA
        2002-2007    2002-2005    2005-2007

ABN        0.13         0.11         0.16
AKB        0.73         0.69         0.79
ALTR       0.17         0.09         0.28
ANDL       0.34         0.3          0.39
ARTB       0.09         0.1          0.06
BDR       -0.11         -0.2         0.01
BNKM       0.26         0.27         0.25
BFB        1.69         1.56         1.87
CTB        0.5          0.26         0.8
DNZB       0.51         0.39         0.66
DTCB       2.02         2.1          1.92
FNB        0.46         0.34         0.63
FRB        0.17         0.21         0.13
HBB        0.11         0.24        -0.04
HSBC       0.3          0.18         0.47
KCB        0.19         0.07         0.35
MLB       -0.38        -0.37         -0.4
OYK        0.15         0.06         0.26
SCG        0.14         0.46        -0.27
SKRB       0.15         0.18         0.11
TKF        0.1          0.19        -0.01
TKS        0.06         0.08         0.03
TRKS       0.14         0.07         0.22
TRKL       0.11         0.1          0.14
TEB        0.33         0.25         0.43
TCZB       0.49         0.41         0.58
TGB        0.16         0.11         0.22
THB        0.35         0.41         0.27
TIS        0.1          0.07         0.14
TVB        0.21         0.16         0.26
WLB       -0.04        -0.02        -0.06
YKR       -0.08         0.04        -0.24

           ROE          ROE          ROE
        2002-2007    2002-2005     2005-20

ABN        0.04         0.04         0.05
AKB        0.14         0.14         0.14
ALTR       0.08         0.06         0.1
ANDL       0.12         0.14         0.11
ARTB       0.04         0.06         0.03
BDR       -0.07        -0.15         0.01
BNKM       0.13         0.13         0.11
BFB        0.21         0.24         0.17
CTB        0.11         0.08         0.13
DNZB       0.1          0.1          0.11
DTCB       0.17         0.21         0.13
FNB        0.16         0.14         0.19
FRB        0.07         0.09         0.05
HBB        0.02         0.06        -0.01
HSBC       0.1          0.06         0.13
KCB        0.06         0.05         0.09
MLB       -0.19        -0.23        -0.15
OYK        0.09         0.05         0.12
SCG       -0.05         0.05        -0.13
SKRB       0.12         0.12         0.07
TKF        0.03         0.06         0.01
TKS        0.06         0.08         0.04
TRKS       0.04         0.04         0.05
TRKL       0.03         0.03         0.03
TEB        0.1          0.07         0.12
TCZB       0.16         0.13         0.19
TGB        0.11         0.1          0.14
THB        0.13         0.15         0.12
TIS        0.06         0.07         0.07
TVB        0.14         0.16         0.11
WLB       -0.01        -0.01          0
YKR       -0.11         0.06        -0.26

Source: Authors' calculation

Table A.5. Profitability Ranks of the Banks

          ROA          ROA          ROA
       2002-2007    2002-2005    2005-2007
Rank      rank         rank         rank

1         DTCB         DTCB         DTCB
2         BFB          BFB          BFB
3         AKB          AKB          CTB
4         DNZB         SCG          AKB
5         CTB         TCZB#         DNZB
6        TCZB#         THB#         FNB
7         FNB          DNZB        TCZB#
8         THB#         FNB          HSBC
9         ANDL         ANDL         TEB
10        TEB          BNKM         ANDL
11        HSBC         CTB          KCB
12        BNKM         TEB          ALTR
13        TVB#         HBB          THB#
14        KCB          FRB          TVB#
15        FRB          TKF          OYK
16        ALTR         SKRB         BNKM
17        TGB          HSBC         TGB
18        SKRB         TVB#         TRKS
19        OYK          TGB          ABN
20        SCG          ABN          TRKL
21        TRKS         ARTB         TIS
22        ABN          TRKL         FRB
23        HBB          ALTR         SKRB
24        TRKL         TKS          ARTB
25        TKF          TRKS         TKS
26        TIS          KCB          BDR
27        ARTB         TIS          TKF
28        TKS          OYK          HBB
29        WLB          YKR          WLB
30        YKR          WLB          YKR
31        BDR          BDR          SCG
32        MLB          MLB          MLB

          ROE          ROE          ROE
       2002-2007    2002-2005    2005-2007
Rank      rank         rank         rank

1         BFB          BFB         TCZB#
2         DTCB         DTCB         FNB
3         FNB          TVB#         BFB
4        TCZB#         THB#         AKB
5         AKB          AKB          TGB
6         TVB#         ANDL         CTB
7         THB#         FNB          HSBC
8         BNKM        TCZB#         DTCB
9         ANDL         BNKM         TEB
10        SKRB         SKRB         OYK
11        TGB          TGB          THB#
12        CTB          DNZB         DNZB
13        DNZB         FRB          BNKM
14        TEB          CTB          ANDL
15        HSBC         TKS          TVB#
16        OYK          TEB          ALTR
17        ALTR         TIS          KCB
18        FRB          TKF          SKRB
19        TIS          ALTR         TIS
20        TKS          HSBC         FRB
21        KCB          HBB          TRKS
22        TRKS         YKR          ABN
23        ABN          ARTB         TKS
24        ARTB         OYK          TRKL
25        TKF          SCG          ARTB
26        TRKL         KCB          BDR
27        HBB          TRKS         TKF
28        WLB          ABN          WLB
29        SCG          TRKL         HBB
30        BDR          WLB          SCG
31        YKR          BDR          MLB
32        MLB          MLB          YKR

Notes: Bold: State banks, Italic: Foreign banks,
Other: Domestic Private banks

Source: Authors' calculation

Notes: Bold: State banks, Italic: Foreign banks,
Other: Domestic Private banks indicated with #.

Table A.6. Efficiency Scores of the Banks Excluding State Banks

            Cost          Cost          Cost
         Efficiency    Efficiency    Efficiency
          2002-2007     2002-2005     2005-2007
           without       without       without
Banks    state banks   state banks   state banks

ABN         0.66          0.68          0.87
AKB         0.89          0.89          0.91
ALTR        0.74          0.78          0.91
ANDL         0.7          0.69          0.93
ARTB        0.69          0.71          0.93
BDR         0.65          0.68           0.9
BNKM        0.67          0.73          0.85
BFB         0.78          0.69          0.89
CTB          0.7          0.71          0.87
DNZB        0.86          0.82          0.92
DTCB        0.65          0.65          0.85
FNB         0.76          0.78          0.88
FRB         0.84          0.82          0.92
HBB         0.65          0.65          0.85
HSBC        0.78          0.76           0.9
KCB         0.67          0.67          0.86
MLB         0.68          0.74          0.85
OYK         0.81          0.76          0.92
SCG         0.65          0.67          0.85
SKRB        0.74          0.69          0.93
TKF         0.69           0.7          0.93
TKS         0.71          0.72          0.88
TRKS        0.75          0.82           0.9
TRKL        0.66          0.66          0.91
TEB         0.78          0.77          0.92
TGB          0.8          0.75          0.93
TIS         0.86          0.84          0.91
WLB         0.71          0.75          0.88
YKR          0.9          0.84          0.84

           Profit        Profit        Profit
         Efficiency    Efficiency    Efficiency
          2002-2007     2002-2005     2005-2007
           without       without       without
Banks    state banks   state banks   state banks

ABN         0.78           0.6          0.45
AKB         0.82          0.62          0.39
ALTR        0.81          0.58           0.2
ANDL        0.81           0.6          0.16
ARTB        0.81           0.6          0.19
BDR          0.8           0.6          0.18
BNKM        0.76          0.61          0.62
BFB         0.78          0.61           0.6
CTB         0.79          0.59          0.49
DNZB        0.82          0.58          0.24
DTCB        0.75          0.62          0.62
FNB         0.79          0.59          0.48
FRB         0.82          0.58          0.22
HBB         0.75          0.62          0.62
HSBC        0.81          0.58          0.31
KCB         0.77          0.62          0.55
MLB         0.77           0.6          0.62
OYK         0.81          0.58           0.2
SCG         0.77           0.6          0.62
SKRB         0.8          0.61           0.2
TKF         0.82          0.59          0.16
TKS         0.79          0.59          0.44
TRKS         0.8          0.59           0.3
TRKL        0.81          0.58          0.18
TEB         0.81          0.58          0.18
TGB         0.83          0.59          0.24
TIS         0.82          0.59          0.39
WLB         0.78          0.59          0.53
YKR         0.74          0.59          0.28

Source: Authors' calculation

Table A.7. Efficiency Ranks of the Banks Excluding State Banks

          Cost          Cost          Cost
       Efficiency    Efficiency    Efficiency
        2002-2007     2002-2005     2005-2007
Rank      rank          rank          rank

 1         YKR           AKB           TGB
 2         AKB           YKR          ARTB
 3        DNZB           TIS          ANDL
 4         TIS          DNZB          SKRB
 5         FRB           FRB           TKF
 6         OYK          TRKS           FRB
 7         TGB          ALTR           OYK
 8         BFB           FNB          DNZB
 9        HSBC           TEB           TEB
 10        TEB          HSBC           TIS
 11        FNB           OYK          ALTR
 12       TRKS           WLB           AKB
 13       SKRB           TGB          TRKL
 14       ALTR           MLB           BDR
 15        WLB          BNKM          HSBC
 16        TKS           TKS          TRKS
 17        CTB          ARTB           BFB
 18       ANDL           CTB           WLB
 19        TKF           TKF           FNB
 20       ARTB          ANDL           TKS
 21        MLB          SKRB           CTB
 22       BNKM           BFB           ABN
 23        KCB           ABN           KCB
 24       TRKL           BDR          BNKM
 25        ABN           KCB          DTCB
 26        BDR           SCG           HBB
 27        SCG          TRKL           MLB
 28       DTCB          DTCB           SCG
 29        HBB           HBB           YKR

         Profit        Profit        Profit
       Efficiency    Efficiency    Efficiency
        2002-2007     2002-2005     2005-2007
Rank      rank          rank          rank

 1         TGB          DTCB          BNKM
 2         AKB           HBB          DTCB
 3         FRB           AKB           HBB
 4         TKF           KCB           MLB
 5         TIS          BNKM           SCG
 6        DNZB           BFB           BFB
 7         OYK          SKRB           KCB
 8         TEB           SCG           WLB
 9        TRKL          ARTB           CTB
 10       ALTR          ANDL           FNB
 11       ARTB           MLB           ABN
 12       ANDL           BDR           TKS
 13       HSBC           ABN           AKB
 14       TRKS           WLB           TIS
 15       SKRB           FNB          HSBC
 16        BDR           TIS          TRKS
 17        FNB           CTB           YKR
 18        CTB           TKS           TGB
 19        TKS          TRKS          DNZB
 20        ABN           TGB           FRB
 21        WLB           YKR          SKRB
 22        BFB           TKF          ALTR
 23        MLB          ALTR           OYK
 24        SCG           TEB          ARTB
 25        KCB          DNZB           TEB
 26       BNKM           FRB          TRKL
 27       DTCB           OYK           BDR
 28        HBB          HSBC          ANDL
 29        YKR          TRKL           TKF

Notes: Decreasing ranking, highest value is at the top and
the lowest is at the bottom Italic: Foreign banks,
Other: Domestic Private banks

Source: Authors' calculation

Table A.8. Profitability Ranks of the Banks Excluding State Banks

          ROA          ROA          ROA
       2002-2007    2002-2005    2005-2007
Rank      rank         rank         rank

1         DTCB*        DTCB*        DTCB*
2         BFB          BFB          BFB
3         AKB          AKB          CTB*
4         DNZB         SCG*         AKB
5         CTB*         DNZB         DNZB
6         FNB*         FNB          FNB*
7         ANDL*        ANDL         HSBC*
8         TEB          BNKM*        TEB
9         HSBC*        CTB          ANDL
10        BNKM*        TEB          KCB
11        KCB          HBB*         ALTR
12        FRB*         FRB          OYK
13        ALTR         TKF          BNKM*
14        TGB          SKRB         TGB
15        SKRB         HSBC*        TRKS
16        OYK          TGB          ABN*
17        SCG*         ABN*         TRKL*
18        TRKS         ARTB*        TIS
19        ABN*         TRKL         FRB*
20        HBB*         ALTR         SKRB
21        TRKL*        TKS          ARTB*
22        TKF*         TRKS         TKS
23        TIS          KCB          BDR*
24        ARTB*        TIS          TKF*
25        TKS          OYK          HBB*
26        WLB*         YKR          WLB*
27        YKR          WLB*         YKR
28        BDR*         BDR*         SCG*
29        MLB*         MLB*         MLB*

          ROE          ROE          ROE
       2002-2007    2002-2005    2005-2007
Rank      rank         rank         rank

1         BFB          BFB          FNB*
2         DTCB*        DTCB*        BFB
3         FNB*         AKB          AKB
4         AKB          ANDL         TGB
5         BNKM*        FNB          CTB*
6         ANDL         BNKM*        HSBC*
7         SKRB         SKRB         DTCB*
8         TGB          TGB          TEB
9         CTB*         DNZB         OYK
10        DNZB         FRB          DNZB
11        TEB          CTB*         BNKM*
12        HSBC*        TKS          ANDL
13        OYK          TEB          ALTR
14        ALTR         TIS          KCB
15        FRB*         TKF          SKRB
16        TIS          ALTR         TIS
17        TKS          HSBC*        FRB*
18        KCB          HBB*         TRKS
19        TRKS         YKR          ABN*
20        ABN*         ARTB*        TKS
21        ARTB*        OYK          TRKL*
22        TKF*         SCG          ARTB*
23        TRKL*        KCB          BDR*
24        HBB*         TRKS         TKF*
25        WLB*         ABN*         WLB*
26        SCG*         TRKL         HBB*
27        BDR*         WLB*         SCG*
28        YKR*         BDR*         MLB*
29        MLB*         MLB*         YKR

Notes: Decreasing ranking, highest value is at the top
and the lowest is at the bottom

Italic: Foreign banks, Other: Domestic Private banks

Source: Authors' calculation

Note: Italic: Foreign banks indicated with *.

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Ucal, M.; Ozcan, K. M.; Bilgin, M. H.; Mungo, J. 2010. Relationship between Financial Crisis and Foreign Direct Investment in Developing Countries Using Semiparametric Regression Approach, Journal of Business Economics and Management 11(1): 20-33. doi:10.3846/jbem.2010.02

Ahmet Faruk Aysan [1], Mustafa Mete Karakaya [2], Metin Uyanik [3]

[1] Department of Economics, Bogazici University, 34342 Bebek, Istanbul, Turkey

[2] Department of Economics, University of Chicago, 1126 East 59th Street, Chicago, Illinois, USA, 60637

[3] Department of Economics, Johns Hopkins University, 440 Mergenthaler Hall 3400 N. Charles Street, Baltimore, MD, USA 21218

E-mails: [1] ahmet.aysan@boun.edu.tr (corresponding author); [2] metekarakaya@uchicago.edu; [3] muyanik1@jhu.edu

Received 31 January 2011; accepted 15 March 2011

(1) See Gineviciene and Tvaronaviciene (2005) for an excellent evaluation of development level of new European Union members.

(2) See Kosekahyaoglu (2006); Bilgin et al. (2010); Dumlubag (2009) and Ucal et al. (2010) for detailed account of Turkish Economy.

(3) Also see Altunbas and Chakravarty (1998); Aysan and Ceyhan (2008); Berg et al. (1993); Berger et al. (1993); Berger, Mester (1997); Gong and Sickels (1992); Kumbhakar (1990); Kwan and Eisenbeis (1994); Lang (1996) and Maudos et al. (2002).

(4) Isik and Hassan (2002b); Abbasoglu et al. (2007); Demir et al. (2005); Carvallo and Kasman (2004); Akin et al. (2010) employ these variables in their models.

(5) Also see Aigner et al. (1997); Battese and Coelli (1988, 1995); Greene (2001, 2002, 2004); Schmidt (1988) and Sickles (2005).

(6) See Sufian and Habibullah (2009) for determinants of bank profitability in developing countries.

Ahmet Faruk AYSAN. He is an Assoc. Prof. of Economics at Bogazici University holds a PhD in Economics from the Department of Economics, University of Maryland College Park, US (2005). Currently, he works on governance, institutions, internationalization of banking, foreign bank entry, credit card competition, regulation of financial markets and G20.

Mustafa Mete KARAKAYA. He is a PhD student at the University of Chicago, Department of Economics. His research interests span empirical asset pricing, financial economics and banking.

Metin UYANIK. He is a PhD student at Johns Hopkins University. He received his MA degree in Economics at Koc University (2010) and BA degree in economics at Bogazici University (2008). His current work focuses on applied macroeconomics.

Table 1. Number of Banks

                              Dec     Dec     Dec     Dec
                             2000    2001    2002    2003

Commercial                    61      46      40      36
State Owned                    4       3       3       3
Privately-owned               28      22      20      18
Under SDIF *                  11       6       2       2
Foreign                       18      15      15      13
Development and Investment    18      15      14      14
Sector Total                  79      61      54      50

                              Dec     Dec     Dec     Sep
                             2004    2005    2006    2007

Commercial                    35      34      33      33
State Owned                    3       3       3       3
Privately-owned               18      17      14      12
Under SDIF *                   1       1       1       1
Foreign                       13      13      15      17
Development and Investment    13      13      13      13
Sector Total                  48      47      46      46

Note: * Saving Deposit Insurance Fund (TMSF)

Source: The Banks Association of Turkey

Table 2. Number of Branches

                              Dec     Dec     Dec     Dec
                             2000    2001    2002    2003

Commercial                   7807    6889    6087    5949
State Owned                  2834    2725    2019    1971
Privately-owned              3783    3523    3659    3594
Under SDIF *                 1073     408     203     175
Foreign                       117     233     206     209
Development and Investment    30      19      19      17
Sector Total                 7837    6908    6106    5966

                              Dec     Dec     Dec     Sep
                             2004    2005    2006    2007

Commercial                   6088    6228    6804    7318
State Owned                  2149    2035    2149    2165
Privately-owned              3729    3799    3582    3868
Under SDIF *                   1       1       1       1
Foreign                       209     393    1072    1284
Development and Investment    18      19      45      48
Sector Total                 6106    6247    6849    7366

Note: * Saving Deposit Insurance Fund (TMSF)

Source: The Banks Association of Turkey

Table 3. Number of Employees

                               Dec       Dec       Dec       Dec
                              2000      2001      2002      2003

Commercial                   164845    132274    118329    118607
State Owned                   70191     56108     40158     37994
Privately-owned               70954     6438      66869     70614
Under SDIF *                  19895     6391      5886      4518
Foreign                       3805      5395      5416      5481
Development and Investment    5556      5221      4942      4642
Sector Total                 170401    137495    123271    123249

                               Dec       Dec       Dec       Sep
                              2004      2005      2006      2007

Commercial                    12263    127857     13857    149102
State Owned                   39467     38046     39223     4014
Privately-owned               7688      78806     7322      78741
Under SDIF *                   403       395       333       327
Foreign                        588      1061      25794     29894
Development and Investment    4533      4401      4573      4681
Sector Total                 127163    132258    143143    153783

Note: * Saving Deposit Insurance Fund (TMSF)

Source: The Banks Association of Turkey

Table 4. Descriptive Statistics

                  Cost          Cost          Cost
               Efficiency    Efficiency    Efficiency
                2002-2007     2002-2005     2005-2007

Mean              0.75          0.74          0.91
Median            0.73          0.73          0.92
Maximum           0.90          0.87          0.95
Minimum           0.65          0.65          0.84
Std. Dev.         0.08          0.06          0.04
Skewness          0.43          0.39          -0.58
Observations       32            32            32

                 Profit        Profit        Profit
               Efficiency    Efficiency    Efficiency
                2002-2007     2002-2005     2005-2007

Mean              0.81          0.60          0.36
Median            0.82          0.59          0.30
Maximum           0.85          0.62          0.62
Minimum           0.76          0.58          0.16
Std. Dev.         0.03          0.01          0.17
Skewness          -0.75         0.53          0.38
Observations       32            32            32

Source: Authors' calculation

Table 5. Cost-Profit Efficiency Scores

           Cost          Cost          Cost
        Efficiency    Efficiency    Efficiency
         2002-2007     2002-2005     2005-2007

ABN        0.66          0.67          0.88
AKB        0.89          0.87          0.92
ALTR       0.73          0.77          0.93
ANDL       0.69          0.68          0.94
ARTB       0.68          0.71          0.94
BDR        0.65          0.67          0.92
BNKM       0.67          0.73          0.84
BFB        0.78          0.68          0.91
CTB        0.70          0.70          0.88
DNZB       0.86          0.80          0.94
DTCB       0.65          0.65          0.84
FNB        0.75          0.77          0.88
FRB        0.83          0.80          0.94
HBB        0.65          0.65          0.84
HSBC       0.77          0.75          0.91
KCB        0.67          0.67          0.86
MLB        0.68          0.74          0.84
OYK        0.80          0.74          0.94
SCG        0.65          0.66          0.84
SKRB       0.73          0.68          0.94
TKF        0.69          0.68          0.94
TKS        0.70          0.70          0.88
TRKS       0.75          0.81          0.91
TRKL       0.66          0.65          0.93
TEB        0.77          0.75          0.94
TCZB       0.87          0.83          0.93
TGB        0.79          0.72          0.95
THB        0.84          0.79          0.95
TIS        0.85          0.81          0.92
TVB        0.90          0.84          0.95
WLB        0.70          0.73          0.88
YKR        0.89          0.82          0.84

          Profit        Profit        Profit
        Efficiency    Efficiency    Efficiency
         2002-2007     2002-2005     2005-2007

ABN        0.80          0.60          0.45
AKB        0.84          0.61          0.38
ALTR       0.83          0.59          0.20
ANDL       0.83          0.60          0.16
ARTB       0.83          0.60          0.19
BDR        0.82          0.60          0.18
BNKM       0.77          0.61          0.62
BFB        0.80          0.61          0.60
CTB        0.80          0.59          0.48
DNZB       0.84          0.58          0.23
DTCB       0.76          0.62          0.62
FNB        0.80          0.59          0.47
FRB        0.84          0.58          0.21
HBB        0.76          0.62          0.62
HSBC       0.82          0.58          0.31
KCB        0.77          0.61          0.55
MLB        0.78          0.60          0.62
OYK        0.83          0.58          0.19
SCG        0.78          0.60          0.62
SKRB       0.81          0.61          0.20
TKF        0.84          0.58          0.16
TKS        0.80          0.59          0.44
TRKS       0.82          0.59          0.30
TRKL       0.83          0.58          0.18
TEB        0.84          0.58          0.18
TCZB       0.83          0.61          0.42
TGB        0.85          0.58          0.23
THB        0.84          0.60          0.27
TIS        0.83          0.59          0.38
TVB        0.84          0.59          0.26
WLB        0.80          0.59          0.53
YKR        0.76          0.59          0.27

Source: Authors' calculation

Table 6. Efficiency Ranks of the Banks

          Cost          Cost          Cost
       Efficiency    Efficiency    Efficiency
        2002-2007     2002-2005     2005-2007
Rank      rank          rank          rank

1         TVB#           AKB          THB#
2          YKR          TVB#          TVB#
3          AKB          TCZB#          TGB
4         TCZB#          YKR          ARTB
5         DNZB           TIS          ANDL
6          TIS          TRKS           TKF
7         THB#          DNZB          SKRB
8          FRB           FRB           FRB
9          OYK          THB#           OYK
10         TGB          ALTR          DNZB
11         BFB           FNB           TEB
12         TEB           TEB          TCZB#
13        HSBC          HSBC          ALTR
14        TRKS           MLB          TRKL
15         FNB           OYK           BDR
16        SKRB          BNKM           AKB
17        ALTR           WLB           TIS
18         WLB           TGB          TRKS
19         CTB          ARTB          HSBC
20         TKS           TKS           BFB
21        ANDL           CTB           FNB
22         TKF           BFB           TKS
23        ARTB           TKF           WLB
24         MLB          ANDL           CTB
25        BNKM          SKRB           ABN
26         KCB           BDR           KCB
27        TRKL           ABN          BNKM
28         ABN           KCB          DTCB
29         BDR           SCG           HBB
30         SCG          TRKL           MLB
31        DTCB          DTCB           SCG
32         HBB           HBB           YKR

         Profit        Profit        Profit
       Efficiency    Efficiency    Efficiency
        2002-2007     2002-2005     2005-2007
Rank      rank          rank          rank

1          TGB          DTCB          BNKM
2         TVB#           HBB          DTCB
3          AKB           AKB           HBB
4         THB#           KCB           MLB
5          TKF          BNKM           SCG
6          FRB           BFB           BFB
7         DNZB          SKRB           KCB
8          TEB          TCZB#          WLB
9         TRKL           SCG           CTB
10         OYK           BDR           FNB
11        TCZB#         ARTB           ABN
12         TIS          THB#           TKS
13        ALTR           MLB          TCZB#
14        ARTB          ANDL           AKB
15        ANDL           ABN           TIS
16        HSBC           WLB          HSBC
17        TRKS           TKS          TRKS
18         BDR          TRKS           YKR
19        SKRB           CTB          THB#
20         FNB           TIS          TVB#
21         CTB           FNB          DNZB
22         TKS          TVB#           TGB
23         BFB           YKR           FRB
24         ABN          ALTR          SKRB
25         WLB           TKF          ALTR
26         MLB          TRKL           OYK
27         SCG           TGB          ARTB
28        BNKM          DNZB           BDR
29         KCB           FRB          TRKL
30        DTCB           TEB           TEB
31         HBB           OYK          ANDL
32         YKR          HSBC           TKF

Notes: Bold: State banks, Italic: Foreign banks,
Other: Domestic Private banks

Source: The Banks Association of Turkey

Notes: Bold: State banks, Italic: Foreign banks,
Other: Domestic Private banks indicated with #.

Table 7. Cost Efficiency

Dependent Variable

Fixed Effect               Return on Asset        Retun on Equity
Regression

                         Coef.      t-value      Coef.      t-value

Explanatory variable

Cost Efficiency         0.221534       1        -0.03198     -0.43
Size                    2.81E-07      1.79      1.56E-07      2.95
Constant                -0.04848     -0.25      0.002128      0.03

Source: Authors' calculation

Table 8. Profit Efficiency

Dependent Variable

Fixed Effect Regression      Return on Asset        Retun on Equity

                            Coef.     t-value      Coef.     t-value

Explanatory variable

Profit Efficiency         -0.20271     -1.48     0.012627      0.27
Size                      2.82E-07      1.84     1,55E-07      2.93
Constant                   0.22948      1.95     -0.02942     -0.72

Source: Authors' calculation

Table 9. Correlation Matrix

Without State Banks

                                 Cost         Profit         Cost
                              Efficiency    Efficiency    Efficiency
                               2002-2007     2002-2007     2002-2005

Cost Efficiency 2002-2007       0.9997        0.4201        0.8726
Profit Efficiency 2002-2007     0.4155        0.9951        0.3856
Cost Efficiency 2002-2005       0.8444        0.3524        0.9944
Profit Efficiency 2002-2005     -0.4113       -0.5934        -0.41
Cost Efficiency 2005-2007       0.3622        0.9354         0.248
Profit Efficiency 2005-2007     -0.3499       -0.741        -0.2747

                                Profit         Cost         Profit
                              Efficiency    Efficiency    Efficiency
                               2002-2005     2005-2007     2005-2007

Cost Efficiency 2002-2007       -0.3665       0.3655        -0.3275
Profit Efficiency 2002-2007     -0.6052       0.9419        -0.7748
Cost Efficiency 2002-2005       -0.3287       0.2194        -0.2146
Profit Efficiency 2002-2005     0.9959        -0.4981       0.6626
Cost Efficiency 2005-2007       -0.4878       0.9952        -0.8448
Profit Efficiency 2005-2007     0.6514        -0.8327       0.9999

Source: Authors' calculation