The main objective of the financial liberalization program was to promote
financial market development through deregulation and create competitive and
efficient banking sector by encouraging new entrants (both private nationals and
foreigners). The program either eliminated or relaxed most restrictions on interest
rates and market entry. The goal of this paper was to examine the performance of
Turkish commercial banks in the deregulated period 1988-1998. We have used
stochastic frontier methodology to measure the cost efficiency of Turkish
commercial banks. The findings of paper indicate that although the efficiency of
banks operated in the sector increased during the sample period, Turkish banks had
a serious efficiency problem. The average inefficiency was 0.236. That means
Turkish commercial banks could have annually saved about 23.6% of variable cost
if they were all able to use the best practice technology.