Banks constitute approximately 90% of the Turkish financial system, so an efficiently operating banking sector is essential for financial consolidation. To ensure the efficient functioning of the banking production process, capital adequacy ratio (CAR), which is a basic indicator in controlling financial risk, should be managed properly. Additionally, the production process of banks fits into a typical two-stage system, thus opening the black-box on bank efficiency is necessary for an accurate efficiency measurement. By focusing on the link between efficiency, risk and return, this study aims to present a two-stage efficiency evaluation of the commercial banks in Turkey for the year 2018. In addition to the efficiency scores, frontier projections are determined, and an examination is made on the CAR targets. The empirical findings indicate that the inefficiency in the Turkish banking sector mainly stems from the operational performance and the average efficiency score of the state-owned banks is the highest. According to the target values, a pattern is detected between the efficiency scores and CAR. We also conclude that the minimum capital adequacy of 10.5% set by Basel III is not high to guide the commercial banks in Turkey to the efficient frontier.
Abreu, M., and Mendes, V. (2002). Commercial bank interest
margins and profitability: Evidence from E.U. countries.
University of Porto Working Paper Series, 122.
BRSA. (2010). Sorularla Basel III. Retrieved from https://
www.bddk.org.tr/ContentBddk/dokuman/duyuru_basel_
0001_53.pdf
BRSA. (2018). 2018 annual report. Retrieved from https://www.
bddk.org.tr/ContentBddk/dokuman/hakkinda_0013_06.
pdf
BRSA. (2019). Turkish banking sector main indicators June
2019. Retrieved from https://www.bddk.org.tr/ContentBddk/
dokuman/veri_0023_08.pdf
Berger, A. N. (1995). The profit-structure relationship in banking--
tests of market-power and efficient-structure hypotheses.
Journal of Money Credit and Banking, 27(2), 404-431.
Besanko, D., and Kanatas, G. (1996) The regulation of bank
capital: Do capital standards promote bank safety?. Journal
of Financial Intermediation, 5(2), 160–183.
Bhattacharya, H. (2013). Capital regulation and rising risk of
banking industry: A financial accounting perspective.
Academy of Banking Studies Journal, 12(1), 31-59.
Bhattacharyya, A., Lovell, C. A. K., and Sahay, P. (1997). The
impact of liberalization on the productive efficiency of
Indian commercial banks. European Journal of Operational
Research, 98(2), 332-345.
Bialas, M., and Solek, A. (2010). Evolution of capital adequacy
ratio. Economics & Sociology, 3(2), 48-57.
Bouheni, F. B., and Rachdi, H. (2015). Bank capital adequacy
requirements and risk-taking behavior in Tunisia: A simultaneous
equations framework. Journal of Applied Business
Research, 31(1), 231-238.
Buyuksalvarci, A., and Abdioglu, H. (2011). Determinants of
capital adequacy ratio in Turkish Banks: A panel data
analysis. African Journal of Business Management, 5(27),
11199-11209.
Cai, M., and Huang, Z. (2014). Analysis of non performing loan
and capital adequacy ratio among Chinese banks in the
post-reform period in China. Journal of Advanced Studies
in Finance, 5(2), 133-144.
Cecchetti, S. G., and Li, L. (2008). Do capital adequacy requirements
matter for monetary policy?. Economic Inquiry,
46(4), 643-659.
Chen, Y., Cook, W. D., Li, N., and Zhu, J. (2009). Additive efficiency
decomposition in two-stage DEA. European Journal of
Operational Research, 196(3), 1170-1176.
Chen, Y., Cook, W. D., and Zhu, J. (2010). Deriving the DEA
frontier for two-stage processes. European Journal of
Operational Research, 202(1), 138-142.
Dagher, J., Dell’Ariccia, G., Laeven, L., Ratnovski, L., and Tong,
H. (2016). Benefits and costs of bank capital. IMF Staff Discussion
Note, 16/04. Retrieved from https://www.imf.org/
external/pubs/ft/sdn/2016/sdn1604.pdf
Degl’Innocenti, M., Kourtzidis, S. A., Sevic, Z., and Tzeremes, N.
G. (2017). Investigating bank efficiency in transition economies:
A window-based weight assurance region approach.
Economic Modelling, 67, 23-33.
Dia, M., Golmohammadi, A., and Takouda, P. M. (2020). Relative
efficiency of Canadian banks: A three-stage network
bootstrap DEA. Journal of Risk and Financial Management,
13(4), 68.
Fukuyama, H., and Matousek, R. (2011). Efficiency of Turkish
banking: Two-stage network system. Variable returns to
scale model. Journal of International Financial Markets,
Institutions and Money, 21(1), 75-91.
Fukuyama, H., and Weber, W. L. (2010). A Slacks-based inefficiency
measure for a two-stage system with bad outputs.
Omega, 38(5), 398-409.
Grigorian, D. A., and Manole, V. (2006). Determinants of commercial
bank performance in transition: An application
of data envelopment analysis. Comparative Economic
Studies, 48(3), 497-522.
Gual, J. (2011). Capital requirements under Basel III and their
impact on the banking industry. Barcelona: La Caixa.
Ho, C. T. B., and Oh, K. B. (2008). Measuring online stockbroking
performance. Industrial Management & Data Systems,
108(7), 988-1004.
Jackson, P. M., and Fethi, M. D. (2000). Evaluating the efficiency
of Turkish commercial banks: An application of DEA and
Tobit Analysis. In proceedings of the International DEA
Symposium, University of Queensland, Brisbane.
Kao, C. (2009). Efficiency decomposition in network data envelopment
analysis: A relational model. European Journal of
Operational Research, 192(3), 949-962.
Kao, C., and Hwang, S. N. (2008). Efficiency decomposition in
two-stage data envelopment analysis: An application to
non-life insurance companies in Taiwan. European Journal
of Operational Research, 185(1), 418-429.
Kao, C., and Hwang, S. N. (2011). Decomposition of technical
and scale efficiencies in two-stage production systems. European
Journal of Operational Research, 211(3), 515-519.
Karray, S. C., and Chichti, J. E. (2013). Bank size and efficiency
in developing countries: Intermediation approach versus
value added approach and impact of non-traditional activities.
Asian Economic and Financial Review, 3(5), 593-613.
KPMG. (2019). Bankacılık Sektörel Bakış. Retrieved from https://
assets.kpmg/content/dam/kpmg/tr/pdf/2019/01/sektorel-
bakis-2019-bankacilik.pdf
Li, Y., Chen, Y. K., Chien, F. S., Lee, W. C., and Hsu, Y. C. (2016).
Study of optimal capital adequacy ratios. Journal of Productivity
Analysis, 45(3), 261-274.
Liang, L., Cook, W. D., and Zhu, J. (2008). DEA models for twostage
processes: Game approach and efficiency decomposition.
Naval Research Logistics, 55(7), 643-653.
Lim, S., and Zhu, J. (2016). A note on two-stage network DEA
model: Frontier projection and duality. European Journal
of Operational Research, 248(1), 342-346.
Lim, S., and Zhu, J. (2019). Primal-dual correspondence and
frontier projections in two-stage network DEA models.
Omega, 83, 236-248.
Modigliani, F., and Miller M. H. (1963). Corporate income taxes
and the cost of capital: A correction. The American Economic
Review, 53(3), 433-443.
Mushtaq, M., Ismail, A., and Hanif, R. (2015). Credit risk, capital
adequacy and bank’s performance: An empirical evidence
from Pakistan. International Journal of Financial Management,
5(1), 27-32.
Nigmonov, A. (2010). Bank performance and efficiency in
Uzbekistan. Eurasian Journal of Business and Economics,
3(5), 1-25.
Polat, A., and Al-khalaf, H. (2014). What determines capital adequacy
in the banking system of Kingdom of Saudi Arabia?
A panel data analysis on Tadawul banks. Journal of Applied
Finance & Banking, 4(5), 27-43.
Posner, E. A. (2015). How do bank regulators determine capital-
adequacy requirements?. The University of Chicago
Law Review, 82(4), 1853-1895.
Reynolds, S. E., Ratanakomut, S., and Gander, J. (2000). Bank
financial structure in pre-crisis East and Southeast Asia.
Journal of Asian Economics, 11(3), 319–331.
Seiford, L. M., and Zhu, J. (1999). Profitability and marketability
of the top 55 US commercial banks. Management Science,
45(9), 1270-1288.
Sexton, T. R., and Lewis, H. F. (2003). Two-stage DEA: An application
to major league baseball. Journal of Productivity
Analysis, 19(2-3), 227-249.
Sturm, J. E., and Williams, B. (2008). Characteristics determining
the efficiency of foreign banks in Australia. Journal of Banking
& Finance, 32(11), 2346-2360.
Tabari, N. A. Y., Ahmadi, M., and Emami, M. (2013). The effect of
liquidity risk on the performance of commercial banks. International
Research Journal of Applied and Basic Sciences,
4(6), 1624-1631.
The Banks Association of Turkey. (2019). Banks in Turkey 2018.
Retrieved from https://www.tbb.org.tr/en/Content/Upload/
Dokuman/161/Banks_in_Turkey_2018.pdf
Wang, C. H., Gopal, R. D., and Zionts, S. (1997). Use of data
envelopment analysis in assessing information technology
impact on firm performance. Annals of Operations
Research, 73, 191-213.
Wang, K., Huang, W., Wu, J., and Liu, Y. N. (2014). Efficiency measures
of the Chinese commercial banking system using an
additive two-stage DEA. Omega, 44, 5-20.
Wanke, P., and Barros, C. (2014). Two-stage DEA: An application
to major Brazilian banks. Expert Systems with Applications,
41(5), 2337-2344.
Williams, H. T. (2011). Determinants of capital adequacy in the
banking sub-sector of the Nigeria economy: Efficacy of
Camels. (A model specification with co-integration analysis).
International Journal of Academic Research in Business
and Social Sciences, 1(3), 233-248.
Zhu, J. (2000). Multi-factor performance measure model with
an application to Fortune 500 companies. European Journal
of Operational Research, 123(1), 105-124.
Year 2022,
Volume: 22 Issue: 1, 75 - 91, 30.01.2022
Abreu, M., and Mendes, V. (2002). Commercial bank interest
margins and profitability: Evidence from E.U. countries.
University of Porto Working Paper Series, 122.
BRSA. (2010). Sorularla Basel III. Retrieved from https://
www.bddk.org.tr/ContentBddk/dokuman/duyuru_basel_
0001_53.pdf
BRSA. (2018). 2018 annual report. Retrieved from https://www.
bddk.org.tr/ContentBddk/dokuman/hakkinda_0013_06.
pdf
BRSA. (2019). Turkish banking sector main indicators June
2019. Retrieved from https://www.bddk.org.tr/ContentBddk/
dokuman/veri_0023_08.pdf
Berger, A. N. (1995). The profit-structure relationship in banking--
tests of market-power and efficient-structure hypotheses.
Journal of Money Credit and Banking, 27(2), 404-431.
Besanko, D., and Kanatas, G. (1996) The regulation of bank
capital: Do capital standards promote bank safety?. Journal
of Financial Intermediation, 5(2), 160–183.
Bhattacharya, H. (2013). Capital regulation and rising risk of
banking industry: A financial accounting perspective.
Academy of Banking Studies Journal, 12(1), 31-59.
Bhattacharyya, A., Lovell, C. A. K., and Sahay, P. (1997). The
impact of liberalization on the productive efficiency of
Indian commercial banks. European Journal of Operational
Research, 98(2), 332-345.
Bialas, M., and Solek, A. (2010). Evolution of capital adequacy
ratio. Economics & Sociology, 3(2), 48-57.
Bouheni, F. B., and Rachdi, H. (2015). Bank capital adequacy
requirements and risk-taking behavior in Tunisia: A simultaneous
equations framework. Journal of Applied Business
Research, 31(1), 231-238.
Buyuksalvarci, A., and Abdioglu, H. (2011). Determinants of
capital adequacy ratio in Turkish Banks: A panel data
analysis. African Journal of Business Management, 5(27),
11199-11209.
Cai, M., and Huang, Z. (2014). Analysis of non performing loan
and capital adequacy ratio among Chinese banks in the
post-reform period in China. Journal of Advanced Studies
in Finance, 5(2), 133-144.
Cecchetti, S. G., and Li, L. (2008). Do capital adequacy requirements
matter for monetary policy?. Economic Inquiry,
46(4), 643-659.
Chen, Y., Cook, W. D., Li, N., and Zhu, J. (2009). Additive efficiency
decomposition in two-stage DEA. European Journal of
Operational Research, 196(3), 1170-1176.
Chen, Y., Cook, W. D., and Zhu, J. (2010). Deriving the DEA
frontier for two-stage processes. European Journal of
Operational Research, 202(1), 138-142.
Dagher, J., Dell’Ariccia, G., Laeven, L., Ratnovski, L., and Tong,
H. (2016). Benefits and costs of bank capital. IMF Staff Discussion
Note, 16/04. Retrieved from https://www.imf.org/
external/pubs/ft/sdn/2016/sdn1604.pdf
Degl’Innocenti, M., Kourtzidis, S. A., Sevic, Z., and Tzeremes, N.
G. (2017). Investigating bank efficiency in transition economies:
A window-based weight assurance region approach.
Economic Modelling, 67, 23-33.
Dia, M., Golmohammadi, A., and Takouda, P. M. (2020). Relative
efficiency of Canadian banks: A three-stage network
bootstrap DEA. Journal of Risk and Financial Management,
13(4), 68.
Fukuyama, H., and Matousek, R. (2011). Efficiency of Turkish
banking: Two-stage network system. Variable returns to
scale model. Journal of International Financial Markets,
Institutions and Money, 21(1), 75-91.
Fukuyama, H., and Weber, W. L. (2010). A Slacks-based inefficiency
measure for a two-stage system with bad outputs.
Omega, 38(5), 398-409.
Grigorian, D. A., and Manole, V. (2006). Determinants of commercial
bank performance in transition: An application
of data envelopment analysis. Comparative Economic
Studies, 48(3), 497-522.
Gual, J. (2011). Capital requirements under Basel III and their
impact on the banking industry. Barcelona: La Caixa.
Ho, C. T. B., and Oh, K. B. (2008). Measuring online stockbroking
performance. Industrial Management & Data Systems,
108(7), 988-1004.
Jackson, P. M., and Fethi, M. D. (2000). Evaluating the efficiency
of Turkish commercial banks: An application of DEA and
Tobit Analysis. In proceedings of the International DEA
Symposium, University of Queensland, Brisbane.
Kao, C. (2009). Efficiency decomposition in network data envelopment
analysis: A relational model. European Journal of
Operational Research, 192(3), 949-962.
Kao, C., and Hwang, S. N. (2008). Efficiency decomposition in
two-stage data envelopment analysis: An application to
non-life insurance companies in Taiwan. European Journal
of Operational Research, 185(1), 418-429.
Kao, C., and Hwang, S. N. (2011). Decomposition of technical
and scale efficiencies in two-stage production systems. European
Journal of Operational Research, 211(3), 515-519.
Karray, S. C., and Chichti, J. E. (2013). Bank size and efficiency
in developing countries: Intermediation approach versus
value added approach and impact of non-traditional activities.
Asian Economic and Financial Review, 3(5), 593-613.
KPMG. (2019). Bankacılık Sektörel Bakış. Retrieved from https://
assets.kpmg/content/dam/kpmg/tr/pdf/2019/01/sektorel-
bakis-2019-bankacilik.pdf
Li, Y., Chen, Y. K., Chien, F. S., Lee, W. C., and Hsu, Y. C. (2016).
Study of optimal capital adequacy ratios. Journal of Productivity
Analysis, 45(3), 261-274.
Liang, L., Cook, W. D., and Zhu, J. (2008). DEA models for twostage
processes: Game approach and efficiency decomposition.
Naval Research Logistics, 55(7), 643-653.
Lim, S., and Zhu, J. (2016). A note on two-stage network DEA
model: Frontier projection and duality. European Journal
of Operational Research, 248(1), 342-346.
Lim, S., and Zhu, J. (2019). Primal-dual correspondence and
frontier projections in two-stage network DEA models.
Omega, 83, 236-248.
Modigliani, F., and Miller M. H. (1963). Corporate income taxes
and the cost of capital: A correction. The American Economic
Review, 53(3), 433-443.
Mushtaq, M., Ismail, A., and Hanif, R. (2015). Credit risk, capital
adequacy and bank’s performance: An empirical evidence
from Pakistan. International Journal of Financial Management,
5(1), 27-32.
Nigmonov, A. (2010). Bank performance and efficiency in
Uzbekistan. Eurasian Journal of Business and Economics,
3(5), 1-25.
Polat, A., and Al-khalaf, H. (2014). What determines capital adequacy
in the banking system of Kingdom of Saudi Arabia?
A panel data analysis on Tadawul banks. Journal of Applied
Finance & Banking, 4(5), 27-43.
Posner, E. A. (2015). How do bank regulators determine capital-
adequacy requirements?. The University of Chicago
Law Review, 82(4), 1853-1895.
Reynolds, S. E., Ratanakomut, S., and Gander, J. (2000). Bank
financial structure in pre-crisis East and Southeast Asia.
Journal of Asian Economics, 11(3), 319–331.
Seiford, L. M., and Zhu, J. (1999). Profitability and marketability
of the top 55 US commercial banks. Management Science,
45(9), 1270-1288.
Sexton, T. R., and Lewis, H. F. (2003). Two-stage DEA: An application
to major league baseball. Journal of Productivity
Analysis, 19(2-3), 227-249.
Sturm, J. E., and Williams, B. (2008). Characteristics determining
the efficiency of foreign banks in Australia. Journal of Banking
& Finance, 32(11), 2346-2360.
Tabari, N. A. Y., Ahmadi, M., and Emami, M. (2013). The effect of
liquidity risk on the performance of commercial banks. International
Research Journal of Applied and Basic Sciences,
4(6), 1624-1631.
The Banks Association of Turkey. (2019). Banks in Turkey 2018.
Retrieved from https://www.tbb.org.tr/en/Content/Upload/
Dokuman/161/Banks_in_Turkey_2018.pdf
Wang, C. H., Gopal, R. D., and Zionts, S. (1997). Use of data
envelopment analysis in assessing information technology
impact on firm performance. Annals of Operations
Research, 73, 191-213.
Wang, K., Huang, W., Wu, J., and Liu, Y. N. (2014). Efficiency measures
of the Chinese commercial banking system using an
additive two-stage DEA. Omega, 44, 5-20.
Wanke, P., and Barros, C. (2014). Two-stage DEA: An application
to major Brazilian banks. Expert Systems with Applications,
41(5), 2337-2344.
Williams, H. T. (2011). Determinants of capital adequacy in the
banking sub-sector of the Nigeria economy: Efficacy of
Camels. (A model specification with co-integration analysis).
International Journal of Academic Research in Business
and Social Sciences, 1(3), 233-248.
Zhu, J. (2000). Multi-factor performance measure model with
an application to Fortune 500 companies. European Journal
of Operational Research, 123(1), 105-124.
Akın Aksoy, E. E., Dirik, C., & Kandil Göker, İ. E. (2022). Opening the Black-box of Bank Efficiency in Turkey with Two-stage Data Envelopment Analysis: A Study on Capital Adequacy Ratio. Ege Academic Review, 22(1), 75-91. https://doi.org/10.21121/eab.1064816
AMA
Akın Aksoy EE, Dirik C, Kandil Göker İE. Opening the Black-box of Bank Efficiency in Turkey with Two-stage Data Envelopment Analysis: A Study on Capital Adequacy Ratio. ear. January 2022;22(1):75-91. doi:10.21121/eab.1064816
Chicago
Akın Aksoy, Emine Ebru, Ceren Dirik, and İlkut Elif Kandil Göker. “Opening the Black-Box of Bank Efficiency in Turkey With Two-Stage Data Envelopment Analysis: A Study on Capital Adequacy Ratio”. Ege Academic Review 22, no. 1 (January 2022): 75-91. https://doi.org/10.21121/eab.1064816.
EndNote
Akın Aksoy EE, Dirik C, Kandil Göker İE (January 1, 2022) Opening the Black-box of Bank Efficiency in Turkey with Two-stage Data Envelopment Analysis: A Study on Capital Adequacy Ratio. Ege Academic Review 22 1 75–91.
IEEE
E. E. Akın Aksoy, C. Dirik, and İ. E. Kandil Göker, “Opening the Black-box of Bank Efficiency in Turkey with Two-stage Data Envelopment Analysis: A Study on Capital Adequacy Ratio”, ear, vol. 22, no. 1, pp. 75–91, 2022, doi: 10.21121/eab.1064816.
ISNAD
Akın Aksoy, Emine Ebru et al. “Opening the Black-Box of Bank Efficiency in Turkey With Two-Stage Data Envelopment Analysis: A Study on Capital Adequacy Ratio”. Ege Academic Review 22/1 (January 2022), 75-91. https://doi.org/10.21121/eab.1064816.
JAMA
Akın Aksoy EE, Dirik C, Kandil Göker İE. Opening the Black-box of Bank Efficiency in Turkey with Two-stage Data Envelopment Analysis: A Study on Capital Adequacy Ratio. ear. 2022;22:75–91.
MLA
Akın Aksoy, Emine Ebru et al. “Opening the Black-Box of Bank Efficiency in Turkey With Two-Stage Data Envelopment Analysis: A Study on Capital Adequacy Ratio”. Ege Academic Review, vol. 22, no. 1, 2022, pp. 75-91, doi:10.21121/eab.1064816.
Vancouver
Akın Aksoy EE, Dirik C, Kandil Göker İE. Opening the Black-box of Bank Efficiency in Turkey with Two-stage Data Envelopment Analysis: A Study on Capital Adequacy Ratio. ear. 2022;22(1):75-91.