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The impact of regulatory reforms on cost efficiency, ownership and competition in the Turkish commercial banking sector

Altintas, N. (2020) The impact of regulatory reforms on cost efficiency, ownership and competition in the Turkish commercial banking sector. PhD thesis, University of Reading

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Abstract/Summary

The Turkish government commenced banking deregulation reforms with the objective of fostering competition in the early 1980s. Yet several financial crises emerged in the aftermath of the reforms, indicating structural weaknesses. The financial crisis in 2001 has been a cornerstone of the regulatory framework, changing the policy focus from deregulation to stability. This study aims to investigate the evolution of the regulatory reforms on cost structure characteristics and on ownership. It also evaluates the impact of reforms on the dynamic of competition in the loan market. Changes in accounting rules and introduction of re-regulation policies took place as of 2002, resulting in previous literature focus on either side of the change. This thesis builds a homogenous data set to allow for accounting changes and to look at the whole reform process, enabling it to draw more robust comparisons and policy implications. It accordingly uses a comprehensive and unique panel dataset of 51 banks for the period 1988-2016, capturing the pre- and postreform periods. To examine the impact of reforms on cost efficiency and ownership, a stochastic cost frontier with inefficiency determinants is estimated. The results suggest that pure cost technology trend worsens over time, confirming that banks have yet to adjust to the new regulatory environment. The trend in cost efficiency shows a non-monotonic pattern over time, implying that efficiency gains have been unsustainable. The results also suggest that reforms influence the ownership-cost efficiency relationship. Specifically, domestic private and foreign banks appear to benefit from an environment with operational freedom and functional autonomy during the pre-reform period. The implementation of tighter prudential norms in the aftermath of the 2001 crisis seems to have had adverse impacts for all ownerships at the early stages. Yet state banks and domestic private banks in particular are initially better equipped to adapt to the new regulatory environment compared to foreign banks. The results of the persistence of profits (POP) model indicate that the reforms had no discernible effect on the competitive conditions of the lending market. Furthermore, the foreign bank entry also did not improve competition. The complementary analysis undertaken using the Boone indicator (BI) suggests that competitive conditions are stronger in the early stages of prudential reforms yet it significantly worsens after 2008, implying that once again the reform package does not seem to have had the desired competition-inducing effects

Item Type:Thesis (PhD)
Thesis Supervisor:Ferrari, A. and Burke, S.
Thesis/Report Department:Department of Economics
Identification Number/DOI:
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:92288

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