Productivity, technology and efficiency of de novo banks: A counter evidence from Turkey

Employing a non-parametric frontier method, we investigate the technical X-efficiency and productivity growth of de novo banks vis-à-vis established banks in Turkey. The purpose of the paper is to study the performance pattern of de novo banks upon establishment. Overall results suggest that de novo banks tend to outperform established banks in all aspects of productive efficiency. Productivity, technology and efficiency also tend to grow faster in de novo banks than in established banks. Most of these performance improvements, however, take place in early years. As these banks approach the age of 10, diseconomies of scale issues begin to emerge, implying that economies of scale opportunities from expanding production scales are quite limited in the Turkish banking market. We also found that foreign entries are not only more efficient but also register faster productivity growth than domestic entries, suggesting that banking authorities, especially in emerging markets, may use foreign entries to boost the efficiency performance of their banks.