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Turkish banks are quite heterogeneous in terms of organizational form, ownership structure, size, age, portfolio concentration, growth prospects and attitude toward risk. They also exhibit strong variations in performance as measured by several efficiency indices. In the light of theoretical advances in corporate finance and financial institutions, this paper is an in-depth cross-sectional analysis of the Turkish banking sector, which explores the various bank, market and regulatory characteristics that may explain the efficiency variations across banks. Consistent with the related hypotheses investigated, the results indicate that a number of independent bank characteristics are significantly correlated with various efficiency measures. Copyright Blackwell Publishers Ltd, 2003.

By employing a stochastic frontier approach, we examine the effect of bank size, corporate control, and governance, as well as ownership, on the cost (input) and alternative profit (inputoutput) efficiencies of Turkish banks. We find that the average profit efficiency is 84% for Turkish banks. The oligopolistic nature of the Turkish banking industry has contributed to less than optimal competition in the loan market and deposit markets. Our results indicate that the degree of linkage between cost and profit efficiency is significantly low. This suggests that high profit efficiency does not require greater cost efficiency in Turkey, and that cost inefficient banks can continue to survive in this imperfect market, where profit opportunities are abundant for all types and sizes of banks. Accordingly, our results indicate that the different sizes of banks have capitalized these opportunities equivalently.

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PurposeThis paper analyzes the responsiveness of different ownership forms to changing business environment by drawing on Turkish experience.Design/methodology/approachThis study is conducted in two stages. In the first stage, the paper uses Malmquist index theory, to estimate the total factor productivity change, technological change, efficiency change, pure efficiency change and scale efficiency change indexes for the Turkish banks. In the second stage, utilizing the generalized least regression format, it examines the significance of the productivity differences between different ownership forms after controlling for size and changes in the macro‐economy.FindingsUnder the “traditional banking definition,” productivity growth during the period was 1.2 percent for state banks, 3.9 percent for private banks and 14.2 percent for foreign banks. Under the “non‐traditional banking definition,” the productivity gain over the period was 2.9 percent for state banks, 9.5 percent for private banks and 17.0 percent for foreign banks.Research limitations/implicationsThe future research can extend the data set and may include more explanatory factors to characterize the bank forms that record the fastest productivity growth.Practical implicationsPrivate ownership appears to be more adaptive to new environment. Foreign banks can be used as a policy instrument to induce efficiency and productivity improvements in local banking industries. Liberalization of markets through competition boosts economic performance.Originality/valueIn analyzing impacts of reforms, the significance of inter‐temporal change should be tested to better guide regulators, investors and managers.

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