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Banking in Turkey
The banking
sector constitutes the greater part of the Turkish financial system.
Nearly all of the activities taking place in both money and capital
markets are carried out by banks. It is a consequence of the
country's economic and historical development that Turkey's
financial system and its banking sector are virtually synonymous
with one another. Many factors have combined to give banking such a
broad function in the Turkish economy. Among these are: The economic
structure of Turkey peculiar to itself, The choice to turn resources
into long-term investment through the banks for the objectives
targeted in the development plans and programs, and the
establishment of banks by the state to finance certain sectors,
Extensive application of Continental European banking practices as
models in the legal structure of the banking system, and A
newly-developing capital market able to compete with the banking
sector.
Background
The
development of the Turkish banking sector can be divided into 6
periods which differ in respect to policies and methods: The Period
of Money-Changers and the Galata Bankers pre-1847): In this period,
all quasi-banking activities were carried out by money-changers and
the Galata bankers who were mostly from the minorities in Istanbul.
The Period of
Foreign Banks (1847-108) : Because the financial situation of the
Ottoman Empire had deteriorated after the Crimean War, the Empire
faced the need for external financial support. Great numbers of
foreign banks arrived with the purpose of extending credits to the
Empire at high interest rates.
The Osmanli
Bankasi Ottoman Bank) was also established in 1856. Its head office
was in London and it served as a central bank until the 1930s.
Development
of National Banking and Implementation of Etatism (1909-1944) :
The years
following the Second Constitution (1908) brought in the national
banking movement as a reaction to foreign banking. Twenty-four
national banks were established in Istanbul and Anatolia between the
years 1908 and 1923. However, foreign banks continued to dominate
banking activities due to the consecutive wars 1911-1922 between
capitulations given to foreigners and national capital scarcity. In
1923, the first National Economic Congress held in Izmir dealt with
a large number of economic problems that the country would have to
overcome. The Congress took the decision that banks would be
established to finance main sectors of the economy. Türkiye-I?
Bankasi (1924), Sanayi ve Maadin Bankasi (1925), and Emlak ve Eytam
Bankasi (1927) were established in order to provide commercial,
industrial and housing credits respectively. However, the negative
effects of the Great Depression on the balance of payments and lack
of domestic capital called for a government-supported economic
development policy in the following years. As a result of this
policy, six state banks were established in the 130s, including the
Central Bank of the Turkish Republic.
Development
of Private Banks (1945-1960):
Despite the
negative effects of the Second World War, a significant rate of
growth and industrialization was
achieved with
the support of the newly-established state banks. This created a
tremendous increase in capital stock in the private sector. Starting
from the early 1950s, etatism weakened because of positive
developments in the private sector, expansion of international
cooperation and transition to a multi-party
political
regime. A more liberal and private-sector oriented policy took over
in the following years. As a result of this policy, more than 30
private banks were established before 1960.
Planned
Development Period (1961-1979):
A new
"planned development" policy was adopted at the beginning of the
1960s. According to this system, the state would command the public
sector and issue recommendations to the private sector through
five-year
plans prepared by the government to cover the whole economy. As
recommended in the plans, several development and investment banks
were established in the 1960s and 1970s in order to finance various
sectors: Turizm Bankasi in 1960, S.Y.K.B. in 1963. Devlet Yatirim
Bankasi Eximbank) in 1964, Devlet Sanayi ve Isçi Yatirim Bankasi
Türkiye Kalkinma Bankasi) in 1975, for example.
Liberalization and Internationalization in Banking (post-1980):
The new
liberal economic policy put into effect in January 1980 aimed at
integration with the world economy by establishing a free market
economy. As a reflection of this policy, the 1980s were witness to
continuous legal, structural and institutional changes and
developments in the Turkish banking sector. During this period, a
series of reforms were undertaken in order to promote financial
market development. The main aim of these eforms was to increase the
efficiency of the financial system by fostering competition among
the banks. In this context interest and foreign exchange rates were
freed, new entrants to the banking system were permitted, and
foreign banks were encouraged to come to Turkey. Turkish banks took
an interest in doing business abroad whether by purchasing banks in
foreign countries or by opening branches and representative offices.
The liberalization of foreign exchange regulations increased bank
foreign exchange transactions. Special finance houses, doing
business according to Islamic banking principles, also found a place
in the Turkish financial system beginning in 1984. The Interbank
Money Market was established in 1986 for the purpose of regulating
liquidity in the banking system. Unified accounting principles and a
standard reporting system were adopted in the same year. In 1987,
banks started to be audited by independent external auditors in
accordance with internationally-accepted principles of accounting.
Legal and institutional arrangements were introduced to foster the
development of the capital market.
As a result,
banks began to provide additional services such as negotiating
security issues and trading in securities, underwriting fund
management, establishing mutual funds and financial consultation.
Other important developments of the eighties included the
diversification of services and products offered, and the progress
achieved in the areas of computerization and automation and the
steady increase in the importance given to training qualified
manpower boosted sector growth.
Structure
The Turkish
financial system is based upon a universal banking system which
legally enables commercial banks to operate in all financial
markets. The only two things the commercial banks are not allowed to
engage in are trading goods or immovables for commercial purposes
and leasing. On the other hand, investment and development banks may
not accept deposits but they may angage in loading goods or
immovables for commercial purpose and also in leasing. The Turkish
state, apart from its regulatory interventions in banking
transactions, also controls the greater part of the Turkish banking
system. Even though the number of state banks is only , their total
share in the system is 4%.
Even tough
the number of state banks is only 9, their total share in the system
as of September 30, 1995 is %45.However since Sümerbank was
privatised in October 1995, the number of state banks feel t 8 as
well as their share in the market. There is no local bank and all
banks are multibranched.
Most
commercial banks have ownership linkages with non-financial
corporations. Holding companies control the ownership and management
of some banks well as those of industrial corporations.There are
also financial conglomerates where the banks act as parent
companies.
Banks do not
face any effective competition from other financial institutions.
Most of the insurance and leasing companies are affiliated to banks.
Another major
characteristic of the banking sector is the high degree of
concentration. The total assets of the five largest banks amount to
%49 of the total assets of the banking system.
As the snd of
September 1995, there were 69 banks operating in Turkey, including
the Central Bank, 13 of which are investment and development banks,
and the rest are commercial banks. Six of the commercial banks and
three of the development and investment banks are state-owned.
The total
number of foreign banks operating in Turkey is 22. 11 were founded
in Turkey with foreign capital as joint stock companies, while the
remaining 11 are simply branches of foreign banks founded abroad.
Despite their
small market share, foreign banks have an important place in the
Turkish banking system because of the new concepts and practices
they have introduced. Particularly in the last decade, foreign banks
have brought to the system new attitudes toward competition and
dynamism. Turkish banks have begun developing strategies to replace
unprofitable services and activities, install new services and
increase profitability and competitive strength through better
control of operating costs.
As of
September 30 , banks in Turkey had a total of 6,135 branches, of
which 2,919 belonged to the state-owned banks.
Since the
attractiveness of collecting deposits has declined in parallel with
the structural changes in the banking sector during the last decade,
banks have started to narrow their branch chains by closing
unprofitable branches and limiting the organizational scale of the
branches.
As the end of
1994, there were 17 branches and 71 representative offices and 2
bureaux of Turkish banks abroad and the number is continiuosly
increasing.In addition, Turkish banks have participation in 32
financial institutions (mostly banks) abroad. The main items of the
aggregated balance sheet of the Turkish banking sector as of
September 30, 1995 are shown below (in TL billion):
|
Total Assets |
3,150,532
|
|
Net worth |
185,405
|
|
Deposits |
1,909,688
|
|
-in TL |
1,024,070
|
|
-in FX |
885,618
|
|
Loans |
1,174,312
|
|
-in TL |
649,360
|
|
-in FX |
524,952
|
|
Securities
Portfolio |
416,566
|
|
Participations |
47,733
|
|
Total
Profits |
81,085
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In the total
assets of the banking sector, the state banks share amounts up to
45% while the share of foreign banks is only 4%.
|
ASSETS (TL. BILLION)
|
|
|
Cash Items |
128,889
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|
Financial
Institutions |
455,987
|
|
Securities
Portfolio |
416,566
|
|
Loans |
1,152,420
|
|
Non-Performing Loans |
21,892
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Loans (Net) |
21,892
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|
Reserve
Requirements |
201,392
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|
Participations |
47,733
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|
Fixed Assets |
148,759
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|
Other Assets |
576,894
|
|
Total assets |
3,150,532
|
|
LIABILITIES
|
|
|
Deposits |
1,909,688
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|
Saving Dep. |
630,760
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|
Certificate
of Dep. |
7,914
|
|
Official
Dep. |
50,531
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Commercial
Dep. |
157,351
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|
Banks Dep. |
96,931
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Other Dep. |
140,049
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|
Foreign
Exchange Dep. |
826,152
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|
Borrowed
Funds |
541,599
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|
Bonds and
Bills |
75,232
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|
Financial
Institutions |
153,588
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|
Other
Borrowed Funds |
312,779
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Other
Liabilities |
432,755
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|
Net worth |
185,405
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|
Total
Profits |
81,085
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|
Total
Liabilities |
3,150,532
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Off-Balance
Sheet Obligations |
|
|
Gurantees
and Indemnities |
1,071 |
|
Commitments |
598
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|
Interest and
FX Related Transactions |
526 |
The most
important source of funds for banks are deposits. State banks
collect 47% of total deposits while the private banks collect the
remaining 53%.
Cash credits
have the highest share in assets. State and private banks supply 48%
and 49% of these credits respectively.
82% of the
banks securities portfolio consists of public sector securities such
as treasury bills, government bonds and revenue sharing certificates
issued to fulfil the funding requirement of the public sector.
Banks
participations in non-financial institutions make up some 73% of
their total participation.
As of the end
of September 1995, the shares of the state banks, national private
banks and foreign banks in total profits are 22%, 66%, and, 12%
respectively. However, when their profits are compared with their
assets, it is observed that the profits of the private banks are
much higher than that of state banks.
Legal
Framework
All banks in
Turkey are subject to Banking Law no.3182 of 1985 and to the
provisions of other laws pertaining to banks. The establishment of a
bank depends on authorization given by the Council of Ministers. For
a new bank to be established, it must be a joint-stock company with
a minimum of TL 1 trillion worth of total paid-up capital. Opening
of new branches by banks, is unrestricted up to 10 branches in a
calendar year for banks whose financial standing is considered
satisfactory. To open more then 10 branches the permission of the
Undersecretariat of Foreign Trade is required. The legal framework
concerning the functioning of foreign banks in Turkey is the same as
that regulating domestic banks. Foreign banks can operate in Turkey,
either by establishing a branch or subsidiary or by going into a
joint venture with a bank established or about to be established in
Turkey. The first branch of foreign banks may be opened with the
permission of the Council of Ministers. Foreign banks must bring
their capital allocated to Turkey in foreign exchange and sell it to
the Central Bank of the Republic of Turkey. The minimum capital
requirement is the same as the above mentioned amount for
establishing a bank in Turkey. A reciprocity provision is also in
force with respect to the operations of foreign banks. This
provision allows the Council of Ministers to take counter measures
if the conditions in any of the countries in which Turkish banks
operate are changed unfavourably.
Supervision of the Banking System
Banks are
institutions in which funds accumulating in the economy are loaned,
exchanged or otherwise utilized. This makes the public supervision
of funds vital to economic stability. Banks in Turkey that have the
status of joint-stock companies are subject to general controls
under the provisions of the Turkish Commercial Code and of various
tax laws. State banks are also subject to audits by the Supreme
Audit Board. Banks are also subject to special supervision by the
Treasury and Undersecretariat of Foreign Trade and the Central Bank
of the Republic of Turkey. In addition to these authorities, the
Banks Association of Turkey acts as a limited organ of supervision
and coordination. As the representative body of the banking sector,
it aims at examining, protecting, and promoting its members'
professional interests. The Treasury and Undersecretariat of Foreign
Trade carries out supervision of the banking sector within the
framework of provisions of its own governing statutes as well as of
the banking laws. The T.U.F.T. exercises its supervisory authority
on a direct and ongoing basis through the Board of Certified Public.
Auditors.In other words, Certified Bank Auditors are responsible for
the on-site examination of the banks. Implementation of provisions
of the Banking Law and the provisions of other laws concerning
banks, examination of all banking operations and determination and
analysis of the relations and balances among the assets, credits,
net worth, profit and loss accounts and all other factors affecting
the financial structure are ensured by the Certified Bank Auditors.
The Central
Bank is responsible for the supervision of the banking sector within
the framework of authority given to it by its own law. Central Bank
inspection takes the form of an external examination which relies on
financial tables and documentation. Additionally, the banks are
audited by independent external auditors in accordance with
internationally accepted principles of accounting. Banks are also
examined by their own inspectors. These inspectors are required to
submit their annual and quarterly financial statements to the
T.U.F.T. In recent years, the supervisory system has been further
strengthened by a number of decisions related to standards for
prudent management. In this context, the Decree on Provisioning
issued in May, 1988 required sufficient reserves for loans losing
their credit-worthiness or in default, and provided for more control
over non-performing loans by rating them. Principles for Capital
Adequacy as laid out in Communique No . 6 came into effect in
October,1989, in order to reduce the risks arising from inadequacy
of bank capital. Some articles in this communique were amended on
April,1993. Having sufficient equity resources, banks would now be
able to cover their risks in conformity with international
standards.
Main Monetary Indicators
(in Billions of TL)
END OF YEAR END OF FEB.
1990 1991 1992
1993 1994 1994 1995
Currency 14074.1 20707.0 35032.5 63103.9
120212.0 64315.1 140811.6
Reserve Money 23871.0 36069.0 61195.0
101721.0 185738.0 103759.0 212881.0
Money Supply (M1) 31398.7 42116.0 70521.0
132309.0 238981.0 112820.0 243156.0
Money Supply (M2) 71571.2 113566.0 182988.0
291976.0 642490.0 288541.0 720712.0
Bank Notes and 11377.5 18546.0 31181.0
52517.0 104370.0 56673.0 127934.0
Coins
Deposit Money 60193.7 95020.0 151807.0
239459.0 538120.0 231868.0 592778.0
Money Supply (M2Y 89195.4 160432.0 289512.0
544933.0 1271201.0 596930. 1416954.0
Central Bank 8294.4 21632.0 46100.0 100583.0
160.431.0 147605.0 164219.0
Credits
Public 5111.7 17671.0 37419.0 82892.0
148109.0 131034.0 151904.0
Private 3182.7 3961.0 8681.0 17692.0
12322.0 16571.0 12315.0
Bank Credits 65648.2 78663.0 140427.0
280080.0 518908.0 281641.0 599201.0
Invest.&Dev.B.Cre. 6933.6 10271.0 14235.0
24106.0 47480.0 27673.0 50862.0
Net Credit Volume 77693.5 106605.0 192081.0
387378.0 714497.0 440348.0 801967.0
Total Deposits 63678.0 100161.0 160244.0
251182.0 557499.0 252613.0 621743.0
Saving Deposits 34901.0 59381.0 92169.0
126036.0 328387.0 137147.0 387538.0
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