THE BANKS ASSOCIATION OF TURKEY
Financial Sector and Banking System in Turkey
March 2005 The Banks Association of Turkey/Financial Sector and Banking System in Turkey/March 2005
©The Banks Association of Turkey
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Whilst every effort has been made to ensure that the information contained in this book is correct, the Banks Association of Turkey can not accept any responsibility for any errors or omissions or for any consequences resulting therefrom.
2 The Banks Association of Turkey/Financial Sector and Banking System in Turkey/March 2005
This report provides general information about the main features and structure of the financial sector and the banking system in Turkey. It has been prepared in Turkish and in English.
Banks Association of Turkey
3 The Banks Association of Turkey/Financial Sector and Banking System in Turkey/March 2005
Turkey, Selected Indicators Unit 2001 2002 2003 2004(F) 2005(P)
National income and employment
Population Million people 68.4 69.4 70.4 71.3 72.3 GNP YTL Billion 176.5 275.0 356.7 424.1 481 GNP USD Billion 144.0 181.8 238.7 293.2 298.5 GDP deflator (%) 57.8 44.4 22.5 8.2 7.9 Real growth (%) -9.5 7.9 5.9 10.0 4.8 Per capita USD 2,105 2,619 3,390 4,112 4,128 Per capita Euro 2,048 2,292 2,883 3,014 3,025 Unemployment rate (%) 8.5 10.3 10.5 9.5 9.8
Financial indicators
WPI (%) 88.6 30.8 13.9 13.8 8.0 CPI (%) 68.5 29.7 18.4 9.3 … USD /YTL 1.4466 1.6397 1.3933 1.3363 … Euro/YTL 1.2813 1.7189 1.7575 1.8233 … Interest rates (O/N,%) 75 55 30 20 … Interest rates (Gov. bonds, %) 83 51 28 23 …
Foreign economic affairs
Export (fob) USD Billion 31.3 36.1 47.3 62.8 76.0 Import(cif) 41.4 51.6 69.3 -97.2 -97.2 Foreign trade balance -10.1 -15.5 -22.0 -34.4 -21.2 Current account balance 3.3 -1.5 -6.9 -15.4 -11.1 Capital flows -13.9 2.0 7.1 16.8 … CB reserves (excluding gold) 18.9 27.0 33.7 36.0 … Share of EU in foreign trade (%) Export (%) 51 51 52 54 … Import (%) 44 45 46 47 … External debt stock USD Billion 113.9 130.4 145.8 153.2* … Medium and long term 97.5 113.9 122.8 123.8* … Short term 16.4 16.5 23.0 29.4* …
Public finance As percentage of GNP (%)
Borrowing requirement (PSBR) 16.4 12.7 9.4 5.9 3.6 Consolidated budget balance -17.4 -14.8 -11.3 -8.0 -6.1
Primary balance 6.4 3.7 5.2 5.7 5.8 Public sector debt stock 89.5 88.3 79.3 77.2 … Domestic 51.9 54.5 54.5 54.8 … External 37.6 33.7 24.8 22.4 …
* As of September (F) Forecast (P) Program
4 The Banks Association of Turkey/Financial Sector and Banking System in Turkey/March 2005
Turkish Banking System, Selected Indicators Unit 2001 2002 2003 2004
Number of banks 61 54 50 48 Commercial banks 46 40 36 35 - State-owned 3 3 3 3 - Privately owned 22 20 18 18 - Banks in the Fund 6 2 2 1 - Foreign banks 15 15 13 13 Non-depository banks 15 14 14 13 - State-owned 3 3 3 3 - Privately owned 9 8 8 8 - Foreign banks 3 3 3 2
Number of branches 6,908 6,106 5,966 6,106 Commercial banks 6,889 6,087 5,949 6,088 - State-owned 2,725 2,019 1,971 2,149 - Privately owned 3,523 3,659 3,594 3,729 - Banks in the Fund 408 203 175 1 - Foreign banks 233 206 209 209 Non-depository banks 19 19 17 18 - State-owned 4 4 4 4 - Privately owned 12 12 10 12 - Foreign banks 3 3 3 2
Number of employees 137,495 123,271 123,249 127,163 Commercial banks 132,274 118,329 118,607 122,630 - State-owned 56,108 40,158 37,994 39,467 - Privately owned 64,380 66,869 70,614 76,880 - Banks in the Fund 6,391 5,886 4,518 403 - Foreign banks 5,395 5,416 5,481 5,880 Non-depository banks 5,221 4,942 4,642 4,533 - State-owned 4,322 4,174 3,882 3,800 - Privately owned 822 691 683 681 - Foreign banks 77 77 77 52
YTL Million 2001 2002 2003 2004
Total assets 216,508 212,675 249,693 306,464 Commercial banks 206,589 203,237 239,423 295,138 - State-owned 70,813 67,831 83,134 106,932 - Privately owned 118,163 119,471 142,270 175,910 - Banks in the Fund 10,823 9,310 7,075 1,940 - Foreign banks 6,790 6,624 6,944 10,356 Non-depository banks 9,918 9,438 10,270 11,327
Shareholders’ equity 21,101 25,695 35,540 45,976 Commercial banks 18,800 22,703 31,351 40,836 - State-owned 6,249 6,747 9,574 10,076 - Privately owned 12,670 15,194 20,958 27,403 - Banks in the Fund -1,625 -626 -847 1,273 - Foreign banks 1,506 1,388 1,666 2,084 Non-depository banks 2,301 2,992 4,189 5,140
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Abbreviations
BRSA : Banking Regulation and Supervision Agency
ICC : Interbank Card Centre
EFT : Electronic Fund Transfer
EST : Electronic Securities Transfer System
İSE : İstanbul Stock Exchange
CMB : Capital Market Board
Takasbank : ISE Settlement and Custody Bank Inc. (İMKB Takas ve Saklama Bankası)
BAT : The Banks Association of Turkey
CBT : The Central Bank of the Republic of Turkey
6 The Banks Association of Turkey/Financial Sector and Banking System in Turkey/March 2005
Contents
Introduction
I. Financial Sector in Turkey
II. Turkish Banking System
III. Risk Management
IV. Banking Supervision
V. Monetary Policy and the Central Bank of the Republic of Turkey
VI. Payments System
VII. Electronic Banking in Turkey
Annex:
Banks Association of Turkey
List of Banks
Contact Information for the Financial Sector Organizations
Selected Figures of the Financial Sector Institutions
Banks in Turkey - Ranked by Total Assets
7
The Banks Association of Turkey/Financial Sector and Banking System in Turkey/March 2005
Introduction
The Turkish economy has been in a continuing progress after the economic program that was launched in 2001. In parallel with the aim of reinforcing the market mechanism, important steps for strengthening the regulatory and supervisory institutions have been taken. Furthermore, the rules that regulate the markets have been harmonized with international standards. The short- term purpose of the economic program was to restore stability in the financial markets. Therefore, efforts were focused on establishing macro balances in a sound manner and on improving expectations. In this context, a series of practices have been introduced with the aim of reducing the public sector deficit, declining the public sector debt, ensuring price stability, strengthening the financial sector, and increasing international credit worthiness. The government has shown its determination in the structural reforms for the establishment of permanent balance in the public sector.
Economic activities have responded positively in a short time. Expectations have improved rapidly, stability has been maintained in the financial markets. Growth has accelerated as the demand increased with more emphasis on the private sector. The ratio of the public sector borrowing requirement to GNP has declined. After many years, the inflation has been pulled down below 10 percent. The demand for Turkish Lira has increased. Real interest rates have come down sharply. The maturity structure of domestic borrowing has improved. The loans supply of the banking system has started again to climb. The volume of foreign trade has increased. Capital inflows have accelerated. The increase in the rate of unemployment has stopped.1
The stable growth environment had positive effect on the banking system. To ensure financial stability serious structural reforms have been introduced in the banking system. Thus, the structure of the banking system has become healthier. An independent agency was formed for increasing the effectiveness of banking supervision and control (the Banking Regulation and Supervision Agency- BRSA). The Banking Act and other banking regulations has been considerably harmonized with international best practices.2
In the field of banking supervision serious steps have been taken toward the transition from rule-based approach to risk-based approach. Due to this, market discipline has started to have a greater importance in ensuring financial stability. With the aim of providing the public and market participants with the information necessary to make meaningful assessments of banks, the implementations on accounting standards, reporting and public disclosure have been strengthened.
1 For detailed information, please visit www.tbb.org.tr 2 For detailed information, please visit www.bddk.org.tr
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In order to strengthen the capital structure of private banking system a special auditing process as a part of “banking restructuring program” was implemented. Assets of the banks were analysed in detail, non-peforming assets were determined, and necessary provisions were set aside for bad loans. Within the context of the restructuring program the balance sheet structure of state-owned banks was strengthened, and special importance has been attached to the increasing of the efficiency in these banks.
Shareholders’ equity of the banking system has been strengthened, free shareholders’ equity has increased. Exchange rate risk has been considerably reduced. An improvement has been observed in the rates of return on assets and return on shareholders’ equity.
The practice of full insurance guarantee introduced to the saving deposits in 1994 and even to all liabilities of the commercial banks in 2001, was terminated in the second half of 2004. The insurance coverage over the saving deposits has been limited to 50 thousand YTL since July 2004.
With the aim of full compliance with the EU Directives legislative work to amend the Banking Act continues. The amendments are mainly concentrated on improving risk-oriented supervision, strengthening the independent structure of the BRSA, and increasing the effectiveness of supervision in the banking system.
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I. Financial Sector in Turkey
The financial sector in Turkey is in the stage of development. Compared to the developed countries, the size of financial sector is small and shallow. On the other hand, the financial sector has an above the average size compared to that of the emerging markets.
Selected Items of Financial Sector ( As percentage of GDP, %, 2003) Emerging Markets (EM) World EU USA EM Europe L. America Turkey Commercial banks 112 173 52 78 27 45 70 Capital market 230 233 321 84 40 84 82 Shares 86 74 130 47 10 35 27 Bonds 144 159 191 37 30 49 55 Public 56 60 46 23 27 37 55 Private 88 99 146 15 3 12 0 Total 342 405 373 162 67 129 152 Source: World Economic Outlook, 2003, Banks Association of Turkey.
The main reasons limiting the growth of the financial sector are low level of savings due to low level of income, the inflation running at very high levels for many years, and low demand for financial assets due to the high cost of intermediation rising from heavy taxation.
Financial Assets (As percentage of GNP, %) 2001 2002 2003 2004 Money and quasi-money 60 51 44 47 Money in circulation 3 3 3 3 Deposits 57474144 - TL 25 21 22 25 - FX 32 26 19 19 Repurchase agreements 2 1 0 0 Capital market 107 76 82 93 Shares (market value) 38 21 27 32 Bills and bonds 68 55 55 55 - Public 68 54 55 55 - Private 0 0 0 0 Investment fund 1 2 4 6 Total 167 127 126 140 Source: CMB, CBT * Provisional
The ratio of money and quasi-money financial assets to GNP is 47 percent as of the end of 2004, while the ratio of capital market instruments to GNP is 93 percent. Within the demand for money and quasi-money financial assets, the share of foreign exchange is high, although it has been decreasing in recent years.
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The most important characteristic of capital markets in Turkey is the predominance of the government securities. Because of tax burdens, and availability of high income from government securities there is no encouragement for prospective issuers of corporate debt. Through the amendments on the tax legislation, the differences in taxation of different investment instruments have been eliminated considerably. The modified provisions on the tax legislation will take effect as of 2006.
Traditionally, the banking system has a majority share in the financial sector. Total assets of the banking system accounts for 90 percent of total assets of the institutions in the financial sector. While the financial sector is dominated by the banking system, there has been a recent increase in the number and size of non-bank finance institutions. The growth and strengthening of non-bank finance institutions has a great importance for the growth and deepening of the financial system. Leading non-bank institutions operating in the financial sector are Special Finance Institutions, Insurance Companies, Leasing Companies, Factoring Companies, Consumer Finance Companies, Intermediary Institutions in the Capital Market, Real Estate Investment Trusts, and Private Pension Funds. (Annex: Table 1)
There is not a single authority in charge of supervision of all the institutions in the financial sector. The authorities responsible for supervising and regulating the respective financial institutions are the Capital Markets Board of Turkey, Undersecretariat of Treasury under the Prime Ministry of the Republic of Turkey, and the Banking Regulation and Supervision Agency.
Supervision and Regulation in the Financial Sector Supervisory and Regulatory Financial Sector Institutions Authorities Banks BRSA (Publicly held banks) CMB