Deregulation and entry performance in Turkish banking

The newly chartered domestic and foreign banks constituted about half of the Turkish banking industry at the turn of the past century. This record number of new entries is the by-products of deregulatory reforms launched in the 1980's and onward. In this chapter, we investigate the productivity performance of these new banks vis-à-vis that of old banks in an era of financial deregulation in Turkey. Employing a nonstochastic inter-temporal production frontier approach over a period of sixteen years, we found that new banks are significantly superior to old banks in resource utilization. Apparently, not hampered by a legacy of inefficiency from the past, new banks could operate nearer the efficiency frontier. Moreover, new banks register faster productivity, technology and efficiency growth than old banks. Equipped with better and newer technology, local partners for foreign entries and holding affiliation for domestic entries appear to have helped these young banks to overcome initial asymmetric information problems and demonstrate higher performance. Our overall results suggest that new entries, especially from more advanced markets, could be instrumental in boosting resource allocation and utilization in banking.