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Abstract:
This paper uses an
unbalanced panel of observations on Turkish commercial banks
during 1988-1999, attempts
to define the structure of the banking sector through
descriptive statistics and panel regressions and
forecasts the changes that will take place in the banking system
based on these. We follow the methodology
of Demirgüç and Huizinga (1999) closely, but instead of a
cross-country analysis, we focus on
issues pertaining to Turkey undergoing the ambitious three-year
stabilization program. The descriptive analysis
of the commercial banks operating in Turkey during 1988-1999
points out to the following facts: the
chronic inflation of the past 15 years and the resulting high
real interest rate have displaced income from
core banking activities by arbitrage income through open
positions. The prevailing high net interest margins
allowed for the existence of large number of small banks and
persistent net losses from non-interest related
activities. The foreign banks in such an environment did not
need to increase their size since
scale economies did not matter as evidenced by the highest
before tax profits accruing to smaller size
banks.
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