How Do Individuals Choose Banks? An Application to Household Level Data from Turkey

Ardic, Oya Pinar and Yuzereroglu, Uygar (2007): How Do Individuals Choose Banks? An Application to Household Level Data from Turkey.

Abstract

This paper uses a multinomial probit model to analyze individuals' choice of banks based on the types of banking services they use, their own characteristics, and their own perceptions about important factors in banking. Previous studies on this topic, which are limited in number, concentrate on the U.S. where financial markets are deep. This analysis uses a unique individual level data set from a nation-wide survey implemented after the 2001 crisis in Turkey, of which one major component was bank failures. Hence, it provides the first set of evidence on the topic in an emerging market context. The study groups banks into three categories: public banks, large private banks and small private banks, among which the latter is perceived to be the potentially risky group. Investigating individuals' choice among these three types, the paper uncovers that while individuals tend to prefer small private banks on the basis of high interest rates, they tend to avoid them on the basis of trust. However, higher branch density and closeness negatively affect the choice of small private banks. Additionally, individual's choice of public banks as opposed to large private banks seems to have been positively influenced mostly by being older, being retired, receiving salary/pension, and valuing special services for farmers and craftsmen while it seems to have been negatively influenced by the use of certain services, valuing friendliness of the staff, and living in more developed regions where there is variety in terms of the financial institutions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Multinomial probit; banking sector; bank choice; household survey; Turkey
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C25 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions ; Probabilities; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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