Estimation and inference in two-stage, semi-parametric models of production processes

An important element of the macro-prudential analysis is the study of the link between business cycle fluctuations and banking sector profitability and how this link is affected by institutional and structural characteristics. This work estimates a set of equations for net interest income, non-interest income, operating costs, provisions, and profit before taxes, for banks in the main industrialized countries and evaluates the effects on banking profitability of shocks to both macroeconomic and financial factors. Distinguishing mainly the euro area from Anglo-Saxon countries, the analysis also identifies differences in the resilience of the respective banking systems and relates them to the characteristics of their financial structure.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID935026_code606534.pdf?abstractid=935026&rulid=5149012&mirid=4

Bank Profitability and the Business Cycle

This paper presents a comprehensive review of 179 studies which employ operational research (O.R.) and Artificial Intelligence (A.I.) techniques in the assessment of bank performance. We first discuss numerous applications of data envelopment analysis which is the most widely applied O.R. technique in the field. Then we discuss applications of other techniques such as neural networks, support vector machines, and multicriteria decision aid that have also been used in recent years, in bank failure prediction studies and the assessment of bank creditworthiness and underperformance.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1356646_code602127.pdf?abstractid=1350544&mirid=1&type=2

Assessing Bank Efficiency and Performance with Operational Research and Artificial Intelligence Techniques: A Survey

Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey.

The present paper investigates the efficiency of the Polish banking industry between 1997-2001. Our preferred methodology is Data Envelopment Analysis, which allows us to distinguish between cost, allocative, technical, pure technical, and scale efficiency. Additionally, we perform a number of tests to investigate whether domestic and foreign banks come from the same population. Finally, we attempt to shed light on the determinants of efficiency. Our results indicate that bank efficiency has not improved during the years analyzed. Whereas greenfield banks have achieved higher levels of efficiency than domestic banks, foreign banks that acquired domestic institutions have not succeeded in enhancing their efficiency.

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=499922

Efficiency of the Polish Banking Industry: Foreign Versus Domestic Banks

This paper investigates input and output efficiency in the Turkish banking industry to understand the impact of size, international variables, ownership, control and governance on profit, cost, allocative, technical, pure technical and scale efficiency measures. Employing a non-parametric approach along with a parametric approach, we estimate the efficiency of Turkish banks over the 1988–1996 period. This period allows us to account for the changes in the macro economy and regulatory treatment of the Turkish banking industry over time. Our results suggest that the heterogeneous characteristics of banks have significant impact on their efficiency. Moreover, cost and profit efficiencies of the Turkish banks have exacerbated over time. Results also indicate that the dominant source of inefficiency in Turkish banking is due to technical inefficiency rather than allocative inefficiency, which is mainly attributed to diseconomies in scale. To the extent that they chose an inefficient level of production, bank management is responsible for scale inefficient operations. However, increasing demand for banking services in the nineties, fueled by the state's increasing demand for funds to finance chronic budget deficits and high growth policies, and the oligopolistic nature of the Turkish banking market do not justify scale adjustments. Our policy suggestions are that the government implement financial reform packages that foster competition in the banking market, and that the industry devise incentive schemes to improve managerial efficiency.

Technical, scale and allocative efficiencies of Turkish banking industry

In January 1980, a new liberal economic policy was adopted in Turkey to promote financial market development and increase the efficiency and productivity of the financial sector by fostering competition among banks. As a result of this policy, the Turkish banking system witnessed a series of legal, structural and institutional changes throughout the 1980s. To enhance their competitive viability, Turkish banks responded by streamlining their operations and investing in new technology. Utilizing a DEA-type Malmquist Total Factor Productivity Change Index, we examine productivity growth, efficiency change, and technical progress in Turkish commercial banks during the deregulation of financial markets in Turkey. We found that all forms of Turkish banks, although in different magnitudes, have recorded significant productivity gains driven mostly by efficiency increases rather than technical progress. Efficiency increases, however, were mostly owing to improved resource management practices rather than improved scales. Our results also indicate that private banks began to close their performance gap with public banks in the new environment.

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Financial deregulation and total factor productivity change: An empirical study of Turkish commercial banks

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.

Efficiency, Ownership and Market Structure, Corporate Control and Governance in the Turkish Banking Industry

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.

Ihsan Isik

Papers

Technical, scale and allocative efficiencies of Turkish banking industry

Financial deregulation and total factor productivity change: An empirical study of Turkish commercial banks

Efficiency, Ownership and Market Structure, Corporate Control and Governance in the Turkish Banking Industry

Cost and Profit Efficiency of the Turkish Banking Industry: An Empirical Investigation

Financial disruption and bank productivity: The 1994 experience of Turkish banks