Evaluating the efficiency of Turkish commercial banks: an application of DEA and Tobit Analysis

Abstract

The purpose of this paper is to investigate the performance of Turkish (TR) commercial banking sector. We evaluate the technical efficiency of individual TR banks using the nonparametric frontier methodology, the Data Envelopment Analysis (DEA). To investigate the determinants of efficiency, we use the Tobit model. This analysis aims to explain the variation in calculated efficiencies to a set of explanatory variables, i.e. banks size, number of branches, profitability, ownership, and capital adequacy ratio. The analysis covers the year, 1998. We find that larger and profitable banks are more likely to operate at higher levels of technical efficiency. Also another finding reveals that the capital adequacy ratio has a statistically significant adverse impact on the performance of banks, which may reflect a risk-return tradeoff in the sector