Bank efficiency and non-performing loans: Evidence from Turkey

This study analyses technical and allocative efficiencies in Turkish banks from December 2002 to December 2017, under the assumption of constant returns to scale. We apply a modified version of the Data Envelopment Analysis (DEA) approach introduced by Aparico et al. (2015), which employs a directional distance model to provide estimates of efficiency, with a focus on Non-Performing Loans (NPLs) as an undesirable output. In addition, we examine the determinants of efficiency by applying quantile regressions to panel data. The results obtained support the thesis that NPLs exert a negative impact in terms of technical efficiency, which confirms the “bad management” hypothesis in the banking sector. We also find that the level of efficiency of Turkish banks differs, depending on the ownership structure in place.