Bank Efficiency in Turkey During the Recent Global Crisis Shahram Taj, Ph.D. Professor of Management Hassan Shirvani, Ph.D. Professor of Economics and Finance Bahman Mirshab, Ph.D. Professor of Management Science and Dean Akif Ahmet Ziya, MBA.

Reading Questions What is technical efficiency? What is DEA? What is the change in bank efficiency in Turkey throughout the recent crisis by using the standard DEA?

Outline Introduction Model Empirical Results Conclusion

Introduction Technical Efficiency It is defined as the production of a desired level of output with the minimum amounts of inputs. Technical efficiency whether a productive unit is efficient relative to others whether a firm is efficient. Typical business entity can be considered as technically efficient relative to its competitors

Introduction DEA – Data Envelopment Analysis offers an empirical approach to the efficient frontier for a collection of firms through an assessment of their individual performances. DEA – A tool for efficiency a particularly powerful tool for assessing operational efficiency in service organizations. DEA – A subject a subject of extensive theoretical refinements and empirical applications.

Model Standard DEA Model The efficiency an arbitrary bank i (i = 1,…,k) is defined as follows: H i = (Weighted sum of bank is outputs) / (Weighted sum of bank is inputs) =

Model Question: How to perfect the substitutability among outputs and inputs? -- Standard optimization

Empirical Results Table 1: The 2007 Data for 26 Turkish Banks Table 2: The 2010 Data for 26 Turkish Banks Table 3: Log (outputs) and Log (inputs) and the DEA efficiency for 26 Turkish commercial banks in 2007 Table 4: Log (outputs) and Log (inputs) and the DEA efficiency for 26 Turkish commercial banks in 2010 Table 5: Efficiencies Comparison Pre and Post Recession

Conclusion Using a modified version of the standard DEA for a sample of 26 major Turkish Banks for 2007 and 2010 First, the prevalence of substantial inefficiencies amount the Turkish banks Second, Obtained essentially similar results with even show a more dramatic decline in recent bank efficiency in Turkey.

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