1 Financial Services Sector in Turkey October 2017 invest.gov.tr Glossary of Terms Acronym Definition Acronym Definition ATM Automated Teller Machine Insurance Claims Follow-up and Monitoring HAYMER AUM Assets Under Management System BIST Borsa Istanbul IMF International Monetary Fund BKM Interbank Card Center N/D No Data BRSA Banking Regulation and Supervision Agency NPL Non-Performing Loan CAGR Compound Annual Growth Rate O/N Overnight Organization for Economic Cooperation and CAR Capital Adequacy Ratio OECD CBRT Central Bank of the Republic of Turkey Development CEO Chief Executive Officer Q Quarter CMB Capital Markets Board of Turkey ROA Return on Assets ROE Return on Equity CRD Capital Requirements Directive Health Insurance Information and Monitoring European Bank of Reconstruction and SAGMER EBRD Center Development SME Small and Medium Enterprises EGM Pension Monitoring Center TBB Turkish Bank Association EIU Economist Intelligence Unit TL Turkish Lira EU European Union TSRB Insurance Association of Turkey FCI Factors Chain International FDI Foreign Direct Investment TCMA Turkish Capital Markets Association FİDER Turkish Leasing Agency GDP Gross Domestic Product HATMER Life Insurance Information and Monitoring Center 2 invest.gov.tr Table of Contents Executive Summary 4 C. Capital Markets 40-55 A. An Overview of Turkish Financial Industry 5-8 i. Brokerage B. Banking and Financial Intermediary 9-39 ii. Portfolio Management i. Banking iii. Investment Trusts ii. Financial Leasing iv. Funds iii. Factoring v. Infrastructure Providers iv. Financing D. Insurance 56-69 v. Asset Management i. Non-Life Insurance vi. Payment Institutions and Electronic Money ii. Life Insurance and Pensions Institutions E. Turkey’s Competitive Landscape 70-83 3 invest.gov.tr Executive Summary The Turkish financial sector proved resilient during the global A key driver of the Turkish financial sector has been its robust financial turmoil in 2009 as well as the ensuing economic crisis economy with a bright future. Over the past 14 years, Turkish thanks to the regulatory reforms and structural overhaul that the economy has been growing with an average annual real GDP government implemented in the wake of the country’s own growth rate of approximately 5.6 per cent and the growth financial meltdown in the early 2000’s. In fact, the reforms in the momentum is expected to continue. Turkey’s sizeable and sector boosted investor confidence so much that financial services diversified economy has achieved remarkable growth and has become the preferred sector for FDI, attracting USD 49.6 billion became 13th largest economy in the world as of 2016. during the past 15 years. Turkey’s economic growth has resulted in income growth and Banking dominates the Turkish financial sector, accounting for over a growing robust middle class with increasing purchasing 70 percent of overall financial services, while insurance services and power. other financial activities also show significant growth potential. As Turkish economy has expanded, it has integrated with the There are 52 banks in Turkey (34 deposit banks, 13 development global economy with a staggering increase in its volume of and investment banks, 5 participation banks). Out 52 banks, 21 international transactions. Such developments have further hold significant foreign capital (30% of total assets are held by stimulated economic activity, thus expanded financial foreign investors). activities. An expanding loan base and favorable liquidity conditions contribute to the healthy growth of Turkey’s financial services. The Turkey has also set specific economic targets to achieve by sector enjoys a leading position in the world with an ever-growing 2023, the centennial of the Republic. One of these targets is to asset size and strong equity structure protecting it against shocks transform Istanbul into a prominent financial center. Turkey’s that may arise from loans or turbulent market conditions. large and young population, qualified labor force and rapidly developing markets along with its geo-strategic location The Turkish insurance market is still underpenetrated (1.5% of makes Istanbul an ideal candidate for an international financial GDP) compared to peer countries and will provide significant hub. Since, the government launched the project for Istanbul potential as new insurers set up shop and acquire a share of the Financial Center, Istanbul has rapidly made progress and is now relatively untapped Turkish market. Turkey has seen strong considered among emerging financial centers in the world. economic growth fueled in part by a young and dynamic population that is increasingly in need of financial products and services. 4 invest.gov.tr A. Overview of the Financial Services Sector Milestones of Turkey’s Financial Services Industry 1982-2000 2001-2006 2007-2012 2013-… Capital Market Law Personal Pension Savings and Mortgage Law, Official Restructuring of Istanbul Istanbul Stock Exchange Investment System Law Gazette No. 26454 Stock Exchange and (ISE) Market opens Banking Act, Law No. 5411 Implementation of Basel II Establishment of Borsa standards in Turkey Istanbul A.Ş. Banking Regulation And Regulation on Measurement and Supervision Agency (BRSA) Evaluation of Capital Adequacy Record profitability of the Implementation of Basel III founded of Banks banking sector in Turkey standards in Turkey Consolidation of the Market Law No. 6361 regarding State-owned banks opened from 100 Banks to 49 Banks Financial Leasing, Factoring up participation banks Takasbank is Authorized by and Financial Institutions New regulatory framework for CMB as the National Establishment of Insurance Payment and Electronic Numbering Agency of Turkey Information and Monitoring Money Institutions Start of internet banking Center - TRAMER, SAGMER, Electronic Fund Trading services HATMER, HAYMER Platform of Turkey (TEFAS) All local or foreign insurance , began to operate reinsurance and pension companies operating in Turkey are members of the Insurance Association of Turkey New Capital Market Law No. 6362 invest.gov.tr Source: BRSA, CMB Turkish financial sector, led by banking, has been rapidly growing while attracting tremendous amount of foreign direct investment (FDI)… CAGR Share Asset Size of Turkey’s Financial Sector (TL Billion) 2008-2016 2016 Banking 4.211 Banking 18 66 Central Bank Insurance and Private Pension CAGR Central Bank 21 13 Other 18% Insurance & Pension 21 3 1.130 Other 14 18 Other includes: BIST capitalization, securities, consumer finance, real estate investments, investment trusts, asset management and venture capital investment 2008 2009 2010 2011 2012 2013 2014 2015 2016 trust assets FDI Flows into Turkish Financial Sector (Cumulative Value in $ Billion, 2002-2016) Others* 3.1 TOTAL: $49.6 Billion Banking: 38.7 Source: CBRT, BRSA, TCMA, IAT, CBRT,6 AFI, BIST USD/TL as of 31.12.2016: 3.52 invest.gov.tr *Activities of Holding Companies and Other Activities Auxiliary to Financial Services Turkish financial sector has been a magnet attracting significant amount of FDI.. Greenfield FDI projects in Financial Services M&As by foreign companies in Financial Services Value ($ Billion) Number Value ($ Billion) Number 2,6 69 67 77 23 63 19 2,2 2003-2009 2010-2016 2003-2009 2010-2016 2003-2009 2010-2016 2003-2009 2010-2016 “Turkey is one of the fastest growing insurance markets “The Turkish banking industry is highly developed and worldwide, supported by a robust economic outlook and a competitive, in our segment in particular. Returns are large, young population. The transaction with Yapı Kredi is a important but for us the importance is mainly in its growth unique opportunity to move into a market-leading position potential, the strategic location and export potential" in one of Europe’s key growth markets which is also an important bridge between Europe and Middle East/Central Asia. This transaction fits perfectly into Allianz’s strategy to use bolt-on acquisitions to strengthen its position in growth Sipko Schat markets.” Executive board member responsible, Commercial banking, Rabobank. Oliver Bäte, Rabobank obtained banking license from Turkish authorities in 2013 Member of the board of management of Allianz SE. with an initial capital investment of $300 million. Allianz acquired 94% of YapıKredi Sigorta’s shares for USD 880 million and 80% of YapıKredi Bank’s pension business, YapıKredi Emeklilik, in March 2013. Source: FDI Market, E&Y invest.gov.tr Turkey’s foreign trade in financial & insurance services has significantly increased in recent years.. Turkey’s Foreign Trade in Financial & Insurance Services ($ Billion) 6 Export Import 4.9 5 4 3 2.4 2 1 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Turkey’s Foreign Trade in Insurance & Pension Services Turkey’s Foreign Trade in Financial Services ($ Billion) ($ Billion) 3 3 Export Import 2.6 Export Import 2,5 2,5 2.3 2 2 1.6 1,5 1,5 1 1 0.8 0,5 0,5 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 invest.gov.tr Source: CBRT B. Banking and Financial Intermediary i. Banking ii. Financial Leasing iii. Factoring iv. Financing v. Asset Management vi. Payment Institutions vii. Electronic Money Institutions invest.gov.tr Financial Payment E-Money BankingandFinancial Intermediary Banking Factoring Financing Asset Man. Leasing Inst. Inst. The banking sector’s asset size grew to more than TL 2.7 trillion in 2016. Banking sector – comparison with Euro Area Total Asset Size for the Banking Sector in Turkey (2015) 120% 2500 296 Assets/GDP 105 2000 2.731 80% 166 1500 Loans/GDP 67 1000 40% 164 EA Deposits/GDP 500 56 Turkey 0 407 0% Housing 38 Loans/GDP 6 Total Assets (TL Billion) Total Assets/GDP (%, RHS) • After the crisis in 2001, the Turkish banking sector was restructured Top 5 Turkish Banks by Asset Size 2016 and became one of the strongests in Europe. (TL Billion) Ziraat Bank 357 • Turkey enjoys strong asset growth with a stunning CAGR 19%, with a İş Bank 312 remarkable increase in the total assets to GDP ratio from 63% in 2005 to 105% in 2016.