MEHMET YÖRÜKOĞLU CENTRAL BANK OF TURKEY DEPUTY GOVERNOR GLOBAL FINANCIAL TURBULENCE AND ITS...
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Transcript of MEHMET YÖRÜKOĞLU CENTRAL BANK OF TURKEY DEPUTY GOVERNOR GLOBAL FINANCIAL TURBULENCE AND ITS...
MEHMET YÖRÜKOĞLU
CENTRAL BANK OF TURKEYDEPUTY GOVERNOR
GLOBAL FINANCIAL TURBULENCE
AND ITS IMPACTS
October 2008
22
I. Reasons behind the turbulence,
II. Measures taken so far …
III. Impacts of the turmoil on;
III.1. Emerging markets,
III.2. Turkey;
IV. Prospects.
Contents
33
-4
-3
-2
-1
0
1
2
3
4
5
95 96 97 98 99 00 01 02 03 04 05 06 07 08
-20
-15
-10
-5
0
5
10
15
20
01
-01
07
-01
01
-02
07
-02
01
-03
07
-03
01
-04
07
-04
01
-05
07
-05
01
-06
07
-06
01
-07
07
-07
01
-08
07
-08
Reasons Behind the Turmoil Loose Monetary Policies:
As a result of low real interest rates in the
developed economies, especially in USA,
during the period 2001 – 2005, investors
initiated leveraged transactions and used risky
instruments in order to gain high yields.
Lack of Transparency and Supervision :
Parallel to the widespread use of originate-to-
distribute business models, financial innovation
and technolobical advancements, complex
instruments were used widely, which in turn
complicated tracing of the investments and risk
analysis of these investments.
Problems in the Housing Sector :
Decline in house prices in USA that began in
the first quarter of 2006 adversely affected
household consumption demand and brought
about increase in the mortgage foreclosure
rate.
Loose Monetary Policies:
As a result of low real interest rates in the
developed economies, especially in USA,
during the period 2001 – 2005, investors
initiated leveraged transactions and used risky
instruments in order to gain high yields.
Lack of Transparency and Supervision :
Parallel to the widespread use of originate-to-
distribute business models, financial innovation
and technolobical advancements, complex
instruments were used widely, which in turn
complicated tracing of the investments and risk
analysis of these investments.
Problems in the Housing Sector :
Decline in house prices in USA that began in
the first quarter of 2006 adversely affected
household consumption demand and brought
about increase in the mortgage foreclosure
rate. Source: OFHEO, Standard&Poors
Housing Price Index (January 2001 – July 2008, annual percentage change)
OFHEO
Case&Shiller
Real Policy Rate in USA(January 1981 – September 2008, percentage)
Soruce: FED, Bureau of Labor Statistics
44
What triggered the crisis?
Increased delinquency rate in sub-prime mortgages and therefore decline in mortgage-backed securities (MBS).
• Big exposures of financial institutions which also have high leverages to these MBS.
Increased risk appetite in the face of low real interest rates
Creation of complex financial instruments in search of higher profitability
“Originate to distribute” model and extensive use of off-balance sheet instruments
Imprudent credit decisions
• Erosions of capital due to financial losses
Cut back in loan supply
Reasons behind the Turbulence
55
Uncertainty in financial markets transformed into a trust problem between financial institutions
In spite of correcting actions of regulatory bodies, arising financial weaknesses of large financial institutions such as Lehman Brothers, Bear Stearns, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual Fund and AIG.
Reasons behind the Turbulence
66
0
50
100
150
200
2007 Q2and Earlier
07 Q3 07 Q4 08 Q1 08 Q2 08 Q3
Global Losses
USA
Europe
As of October total losses that the international financial system has suffered reached 659 billion US Dollars.
IMF revised its global loss forecast from 945 billion US Dollars to 1.4 trillion US Dollars.
During the same period banks were able to raise up equity by 638 billion US Dollars.
Due to the financial turmoil banks faced significant losses and hence they tightened the credit standards significantly.
As of October total losses that the international financial system has suffered reached 659 billion US Dollars.
IMF revised its global loss forecast from 945 billion US Dollars to 1.4 trillion US Dollars.
During the same period banks were able to raise up equity by 638 billion US Dollars.
Due to the financial turmoil banks faced significant losses and hence they tightened the credit standards significantly.
Losses in the Banking and Financial Sector (billion US dollars)
Source: Bloomberg
World
Asia
Ratio of Banks Reporting Tightening Credit Standards to the Total Banks
(2006 Q1 – 2008 Q3, quarterly, percentage)
-20
-10
0
10
20
30
40
50
60
70
20
06
Q1
20
06
Q2
20
06
Q3
20
06
Q4
20
07
Q1
20
07
Q2
20
07
Q3
20
07
Q4
20
08
Q1
20
08
Q2
20
08
Q3
USA
Europe
Source: FED, ECB
77
Measures taken so far …
Coordinated response of Central Banks by providing liquidity support
Bail outs from U.S. and European governments
Intervention of US government by its fiscal policy
• Capital injection and assets expansion by accepting as collateral,
• Encouraging some banks to fund the troubled banks by secured funding,
• Paying interest on depository institutions required and excess reserve balances (by Fed),
Guarantee on bank deposits and/or other liabilities in USA and Europe
88
8
16
24
32
40
48
56
64
72
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
Impacts of the Turmoil Volatility index (VIX) has reached its highest level of the last 19 years, surpassing
previous highs seen during the Asian crisis, dot-com bust and after the 11 September attacks.
TED spread, an indicator of credit risk in the economy, used to range around 50 basis points prior to the start of the turmoil but lately the spread has widened to around 460 basis points.
Volatility index (VIX) has reached its highest level of the last 19 years, surpassing previous highs seen during the Asian crisis, dot-com bust and after the 11 September attacks.
TED spread, an indicator of credit risk in the economy, used to range around 50 basis points prior to the start of the turmoil but lately the spread has widened to around 460 basis points.
0
50
100
150
200
250
300
350
400
01-0
7
03-0
7
05-0
7
07-0
7
09-0
7
11-0
7
01-0
8
03-0
8
05-0
8
07-0
8
09-0
8
Source: Bloomberg Source : Bloomberg
Volatility Index(2 January 1990 – 20 October 2008)
Difference Between LIBOR and US Treasury Bill (3 month)
(1 January 2007 – 6 October 2008, basis points)
Long-term average
99
200
250
300
350
400
450
500
550
600
650
700
02
.01
.20
08
17
.01
.20
08
04
.02
.20
08
20
.02
.20
08
06
.03
.20
08
24
.03
.20
08
08
.04
.20
08
23
.04
.20
08
08
.05
.20
08
23
.05
.20
08
10
.06
.20
08
25
.06
.20
08
10
.07
.20
08
28
.07
.20
08
12
.08
.20
08
27
.08
.20
08
12
.09
.20
08
29
.09
.20
08
15
.10
.20
08
-100
0
100
200
300
400
500
Foreign Exchange Rates and Risk Indicators
Since the beginning of August fall in the value of Turkish Lira against US Dollars is close to the average depreciation rate of emerging economies’ currencies.
In the second quarter of 2008 Turkey’s risk premium increased more than that of other developing countries. Yet, a marked correction has been observed since July 2008.
Since the beginning of August fall in the value of Turkish Lira against US Dollars is close to the average depreciation rate of emerging economies’ currencies.
In the second quarter of 2008 Turkey’s risk premium increased more than that of other developing countries. Yet, a marked correction has been observed since July 2008.
Source: JP Morgan
(Turkey) – (EMBI+)
-5 0 5 10 15 20 25 30 35 40 45
Iceland KorunaBrazilian Real
Hungarian ForintColombian Peso
South African RandPolish Zloty
Mexican PesoChilean Peso
Romanian LeySouth Korean Won
Turkish LiraCzech Koruna
Indian RupeeLatvian Lats
Lithuanian LTLRussian Ruble
Ukraine HryvniaMalaysian Ringgit
Phillippine PesoSingapore Dolar
Indonesian RupeeTaiw an DolarIsralie Shekel
Source: OANDA
Change in the Spot Foreign Exchange Rate vs USD
(between 1 August 2008 and 16 October 2008, percent)
Risk Indicators(2 January 2008 – 20 October 2008, basis points)
EMBI + TurkeyEMBI +
1010
Banking and Financial Sector
Capital Inflows and Current Account Deficit
Economic Activity
Exchange Rate and Inflation
Potential Impacts on Turkish Economy
1111
Until now, limited effects on banking and financial sector due to,
• Considerable improvement in macroeconomic stability,
• Prudent macroeconomic policies,
• Conservative Regulation and Supervision,
• Tools used by Central Bank of Turkey to calm the markets, such as reintroduction of FX deposit market,
• Tight fiscal policy and monetary policies.
Impacts on Turkish Banking and Financial Sector
1212
-7
-6
-5
-4
-3
-2
-1
0
1
2000
Q1
2000
Q3
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
Banking Sector
Compared to earlier periods Turkish banking sector’s resilience has improved remarkably.
The sector does not hold a noteworthy FX short position.
Net FX positions of the banks are at a low level compared to their equity capital.
Compared to earlier periods Turkish banking sector’s resilience has improved remarkably.
The sector does not hold a noteworthy FX short position.
Net FX positions of the banks are at a low level compared to their equity capital.
Net FX Position of the Banking Sector(2000 Q1 – 2008 Q3*, billion USD)
* As of 19 September 2008 Source: BRSA, CBT
The capital adequacy ratio is well above the legal limit and the EU average of 12.1%.
Banks’ short-term FX liquidity and total short-term liquidity adequacy ratios remain above the legal limits of 80% and 100%, respectively.
Strong capital structure and high profit to equity ratios curtail banking sector’s vulnerability to the financial turmoil.
The capital adequacy ratio is well above the legal limit and the EU average of 12.1%.
Banks’ short-term FX liquidity and total short-term liquidity adequacy ratios remain above the legal limits of 80% and 100%, respectively.
Strong capital structure and high profit to equity ratios curtail banking sector’s vulnerability to the financial turmoil.
0
4
8
12
16
20
24
28
12-0
5
02-0
6
04-0
6
06-0
6
08-0
6
10-0
6
12-0
6
02-0
7
04-0
7
06-0
7
08-0
7
10-0
7
12-0
7
02-0
8
04-0
8
06-0
8
Capital Adequacy Ratio (December 2005 – July 2008, percent)
Target rate is 12%
Legal limit is 8%
Operational risk included
Source: BRSA, CBT
1313
0
50
100
150
200
250
300
07-0
7
08-0
7
09-0
7
10-0
7
11-0
7
12-0
7
01-0
8
02-0
8
03-0
8
04-0
8
05-0
8
06-0
8
07-0
8
08-0
8
09-0
8
Banking Sector
0
50
100
150
200
250
300
07
-07
08
-07
09
-07
10
-07
11
-07
12
-07
01
-08
02
-08
03
-08
04
-08
05
-08
06
-08
07
-08
08
-08
09
-08
Short-Term FX Liquidity Ratio (6 July 2007 – 12 September 2008, percent)
Legal limit is 80%
Up to 1 month
0-7 days
Total Short-Term Liquidity Ratio (6 July 2007 – 12 September 2008, percent)
Legal limit is 100%
Up to 1 month
0-7 days
Source: BRSA, CBT Source: BRSA, CBT
1414
Banking Sector
11.5
3.5
4.9
3.7 3.9
2.8
0
2
4
6
8
10
12
14
2003 2007
Ratio of Non-Performing Loans to Total Loans (2003 vs. 2007, percent)
* Developing countries: Argentina, Brazil, Bulgaria, Czech Republic, Croatia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Ukraine** Developed countries: France, Germany, Italy, United Kingdom, USASource: IMF, CBT
Developed Countries**
Developing Countries*
Turkey
1515
Bank Credits
0
10
20
30
40
50
60
70
80
90
01
-06
02
-06
03
-06
04
-06
05
-06
06
-06
07
-06
08
-06
09
-06
10
-06
11
-06
12
-06
01
-07
02
-07
03
-07
04
-07
05
-07
06
-07
07
-07
08
-07
09
-07
10
-07
11
-07
12
-07
01
-08
02
-08
03
-08
04
-08
05
-08
06
-08
07
-08
08
-08
Retail Loans
Business Loans
Business Loans and Retail Loans(1 January 2006 – 5 September 2008, year-on-year percentage change)
Source: CBT
1616
58
912
17
23
5760
63
0
10
20
30
40
50
60
70
2004 2005 2006
Households
Total Household Liabilities(2004 – 2006, percent of GDP)
European Union
Eastern Europe
Turkey
Source: CBT Source: ECB, CBT
FX Debt of Households((2003 – September 2008,
percent of total consumer loans)
8.6
6.4
4.8
3.63.9
4.6
0
2
4
6
8
10
2003 2004 2005 2006 2007 Sep-08
1717
Turkey (A) shows the data of 2007 including participation banks; Turkey (B) shows the data of June 2008 including participation banks. For EU members, the data of 2007 is used.
Source: Turkstat, BRSA-CBRT, ECB.
Banking sector is still quite small with a strong potential to grow.
(%)
RomaniaTurkey (A)Turkey (B)PolandLithania
HungaryBulgariaCzech Republic
Latv iaFinlandGreece
ItalySweden
PortugalSpain
GermanyMU13
AustriaEU27
FranceNetherlandsBelgium
DenmarkUK
Luxembourg
(2533)
0 100 200 300 400 500 600 700 800 900
Ireland
•
Impacts on Turkish Banking and Financial Sector
1818
Impacts on Turkish Banking and Financial Sector
Source: BRSA,CBRT, Association of Capital Market Intermediary Institutions, CMB
(1) Figures are as of June 2008.
3.0 2.0 0.10.50.50.60.71.2
88.1
3.3
0102030405060708090
100
Ba
nks
(in
cl.p
articip
atio
n
Mu
tua
l fu
nd
s
Insu
ra
nce
co
mp
an
ies
Le
asin
g
co
mp
an
ies
Fa
cto
rin
g
co
mp
an
ies
Co
nsu
me
r
fin
an
ce
Se
cu
ritie
s
bro
ke
ra
ge
fir
ms
Re
al e
sta
te
inve
stm
en
t
Pe
nsio
n f
un
ds
Inve
stm
en
t
co
mp
an
ies
(%)
•Financial system in Turkey is bank dominated;
•No toxic financial instruments in banks’ portfolio;
•Shallow markets for complex financial derivatives.
1919
Impacts on Turkish Banking and Financial Sector
Financial Stability Index
Source: CBRT
110.0
113.0
116.0
119.0
122.0
12.0
2
12.0
3
12.0
4
12.0
5
12.0
6
12.0
7
08.0
8
Index
Financial Stability Index Average
•FSI is a composite index that is used as a measure of the financial soundness.
•It indicates a sound Turkish banking sector.
2020
Inflation Developments in Turkey Thanks to achievements in price stability, Turkey’s ranking in terms of inflation has
improved.
While in the 1997-2003 period, Turkey was among the 10 countries with highest inflation in the world, as of September she declined to the 62th position.
Thanks to achievements in price stability, Turkey’s ranking in terms of inflation has improved.
While in the 1997-2003 period, Turkey was among the 10 countries with highest inflation in the world, as of September she declined to the 62th position.
0
20
40
60
80
100
120
140
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
47 7
10
48 9
34
25 26
55
62
0
10
20
30
40
50
60
70
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
*
* Most recent data as of September 2008The total number of countries is 155. The ranking is in descending order.Source: IMF, TURKSTAT, CBT
Inflation Targeting Regime
Inflation in Turkey (1980 – 2008*)
Turkey in the Global Inflation Ranking (1997 – 2008)
* 2008 forecast of the Central Bank of TurkeySource: IMF, TURKSTAT, CBT
2121
Effects on the Turkish Economy; Inflation As a result of global crisis commodity prices, especially food and energy prices, declined
drastically.
Falling commodity prices, moderating domestic demand and depreciation of Turkish Lira will have favorable effects on the current account deficit and an improvement in the current account deficit is expected in the months to come.
As a result of global crisis commodity prices, especially food and energy prices, declined drastically.
Falling commodity prices, moderating domestic demand and depreciation of Turkish Lira will have favorable effects on the current account deficit and an improvement in the current account deficit is expected in the months to come.
4
6
8
10
12
14
01-0
7
03-0
7
05-0
7
07-0
7
09-0
7
11-0
7
01-0
8
03-0
8
05-0
8
07-0
8
09-0
8
40
60
80
100
120
140
160
01-0
7
03-0
7
05-0
7
07-0
7
09-0
7
11-0
7
01-0
8
03-0
8
05-0
8
07-0
8
09-0
8
Wheat Price(1 January 2007 – 9 October 2008, US Dollars/Bushel)
Oil Prices(NYMEX WTI, 1 January 2007 – 9 OCtober 2008, US Dollars)
Source: Bloomberg
Source: Chicago Board of Trade
-5.7
-0.7
-6.1
-4.6
-3.7
-2.5
-2.7
-1.8
-2.9-2.4-2.5
-7
-6
-5
-4
-3
-2
-1
0
2002 2003 2004 2005 2006 2007
* Keeping energy prices constant at 2002 levels.
Current Account Deficit
Current Account Balance and The Effect of Energy Prices on the Current Account
Deficit*
(2002 – 2007, percent of GDP)
Source: TURKSTAT, CBT
2222
Effects on the Turkish Economy; Inflation Favorable developments in commodity prices and deterioration in the domestic demand
suggest that inflation will improve in the following months.
However, recent depreciation of Turkish Lira may create upward pressure on the inflation rate in the short-run.
The items outside the domain of monetary policy such as food prices, food and energy prices prices contributed to annual inflation by 41% in 2004-2006 period, whereas their contribution rose to 63% in September 2008.
Favorable developments in commodity prices and deterioration in the domestic demand suggest that inflation will improve in the following months.
However, recent depreciation of Turkish Lira may create upward pressure on the inflation rate in the short-run.
The items outside the domain of monetary policy such as food prices, food and energy prices prices contributed to annual inflation by 41% in 2004-2006 period, whereas their contribution rose to 63% in September 2008.
Components of Annual Inflation (percentage share)
* Food: Food and Non-Alcoholic Beverages
** Tobacco: Tobacco Products and Alcoholic Beverages
Source: TURKSTAT, CBT
2004 – 2006 Average September 2008
59.140.9
Other Goods and Services
Food and Energy
37.5
62.5Other Goods and
Services
Food and Energy
2323
Balance of Payments – Current Account
17.3 16.0
18.2
20.2 19.3
17.5
19.2
24.4 23.8
24.9 25.4
22.6
20.0
15.1
10
15
20
25
30
2001 2002 2003 2004 2005 2006 2007
Source: SPO Program for 2008, CBT
Domestic Savings and Investments (2001 – 2007, percent of GNP)
Domestic Savings
Investments
* 1987 based series
2424
Balance of Payments – Current Account
Source: TURKSTAT, CBT
* Keeping energy prices constant at 2002 levels.
Current Account Balance and The Effect of Energy Prices on the Current Account Deficit*
(2002 – 2007, percent of GDP)
Current Account Deficit Excluding the Effect of Energy Prices
Current Account Deficit
-5.7
-0.7
-6.1
-4.6
-3.7
-2.5
-2.7
-1.8
-2.9-2.4-2.5
-7
-6
-5
-4
-3
-2
-1
0
2002 2003 2004 2005 2006 2007
2525
-40
-20
0
20
40
60
80
100
2000 2003 2004 2005 2006 2007 2008*
-40
-20
0
20
40
60
80
100
2000 2003 2004 2005 2006 2007 2008*
Financing of the Current Account(2000 – 2008*, percent of current account deficit)
Source: CBT
Foreign Direct Investment 3
Long Term Credits 2
Short Term Credits 1
Capital Flows
Portfolio Investments 4
* Last 12 months as of 2008 May1 Short Term Credits: Net short term loans of the banking sector, non-bank private sector and the public sector, plus trade credits2 Long Term Credits : Net long term loans of the banking sector, non-bank private sector and the public sector
3 Foreign Direct Investment: Foreign direct investment inflows4 Portfolio Investment: Purchases of equities and securities by nonresidents and deposits of nonresidents
Financing of the Current Account(2000 – 2008*, percent of current account deficit)
Source: CBT
* Last 12 months as of 2008 May1 Bank Credits: Short and long-term borrowing of the banking sector2 Non-Bank Private Sector Credits : Short and long term borrowing of the non-bank private sector, plus trade credits3 Foreign Direct Investment: Foreign direct investment inflows4 Public Sector Borrowing: Purchases of government securities (including Eurobonds) by nonresidents, credits to central government and to the Central Bank (including IMF credits)5 Equaities: Purchases of equities by nonresidents
Foreign Direct Investment 3
Non-Bank Private Sector Credits 2
Bank Credits 1
Public Sector Borrowing 4
Equities 5
2626
Foreign Direct Investment (Annual, billion US dollars)
Foreign Direct Investment
China 83.5
Hong Kong 60.0
Russia 52.5
Singapore 24.1
Turkey 22.0
Mexico 24.7
Brazil 34.5
India 22.9
Romania 9.7
Chile 14.4
Source: UNCTAD
Foreign Direct Investment Inflows (2006, billion US dollars)
1.0 1.1 1.82.9
10.0
19.9
22.0
0
5
10
15
20
25
30
Averageof 1990-
2001
2002 2003 2004 2005 2006 2007
Source: CBT
2727
23.9
32.930.4
24.9
18.6
30.2
48.6
0
10
20
30
40
50
60
Brazil CzechRepublic
SouthAfrica
Hungary Mexico Poland Turkey
Cumulative GDP Growth (Percentage change, 2001-2007)
Economic Growth
Source: TURKSTAT, IMF World Economic Outlook
2828
Productivity and Wages
Productivity, Real Wages and Real Unit Wages in the Manufacturing Industry(1998 Q4 – 2008 Q1, per hour worked, 4-quarter moving average, logarithmic scale)
1.95
2.00
2.05
2.10
2.15
2.20
2.2519
98 Q
4
1999
Q2
1999
Q4
2000
Q2
2000
Q4
2001
Q2
2001
Q4
2002
Q2
2002
Q4
2003
Q2
2003
Q4
2004
Q2
2004
Q4
2005
Q2
2005
Q4
2006
Q2
2006
Q4
2007
Q2
2007
Q4
1.70
1.75
1.80
1.85
1.90
1.95
2.00
2.05
2.10
Productivity Index (lhs)
Real Unit Wages Index(rhs)
Source: TURKSTAT, CBT
Real Wages Index(rhs)
2929
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.91
95
0
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
Export Performance
Source: WTO, CBT
Turkey’s Share in World Exports (1950 – 2007, percent)
3030
0
5
10
15
20
25
30
35
40
01-0
6
03-0
6
05-0
6
07-0
6
09-0
6
11-0
6
01-0
7
03-0
7
05-0
7
07-0
7
09-0
7
11-0
7
01-0
8
03-0
8
05-0
8
07-0
8
10
15
20
25
30
35
01-0
6
03-0
6
05-0
6
07-0
6
09-0
6
11-0
6
01-0
7
03-0
7
05-0
7
07-0
7
09-0
7
11-0
7
01-0
8
03-0
8
05-0
8
07-0
8
Foreign Trade
0
20
40
60
80
100
120
140
160
180
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Real Imports and Real Exports Indices(1982 – 2007, 2003 = 100)
Imports
Exports
Imports
Exports
Source:TURKSTAT, CBT
Imports and Exports Growth(January 2006 – August 2008, 12-month rolling
year-on-year change, in USD, percent)
Source:TURKSTAT, CBT
Exports
Imports (ex-oil)
3131
Export Performance
Composition of Turkey’s Exports (top 8 export sectors, billion USD)
* 12-month rolling as of May 2008Source: TURKSTAT, CBT
1.0 2.3 3.6
22.4
1.9 1.9 2.8
15.2
1.62.2
13.5
1.3 2.13.2
9.9
0.71.3
1.8
8.8
3.62.9
3.1
9.0
2.73.7
4.3
9.7
6.16.6
8.1
14.5
1.3-
20
40
60
80
100
1996 2000 2002 2008
Apparel and clothing
Textile yarn, fabrics
Food and live animals
Chemicals and petroleum products
Iron and steel
Electrical machinery and appliances
Motor vehicles
Industrial Machinery
3232
146 4 1 1 2
29
3936
3836
3530
28 27 24
13172528
2629 28
42
34
43
6662
55
49
0
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008Q1
2008Q2
24.5
10.29.0
4.5
0.6 0.11.3
0
5
10
15
20
25
30
2001 2002 2003 2004 2005 2006 2007
Public Sector
Maastricht Criteria: 3.0%
Source: Treasury
EU Defined General Government Budget Deficit (2001 – 2007, percent of GDP)
Public Sector Net Debt Stock / GDP (2000 – 2008 Q2, percent of GDP)
Source: Treasury
Total Net Debt Stock
Net Foreign Debt
Net Domestic Debt
Public sector has become more resilient to external shocks due to tight fiscal policy that has been implemented since 2001.
The Treasury maintains a high level of FX reserves with the aim of minimizing any liquidity risk that might arise in cash and debt management.
Public sector has become more resilient to external shocks due to tight fiscal policy that has been implemented since 2001.
The Treasury maintains a high level of FX reserves with the aim of minimizing any liquidity risk that might arise in cash and debt management.
3333
Central Bank Foreign Exchange Reserves
Source: CBT
Ratio of Short Term Debt to Central Bank FX Reserves
(1996 – 2008 Q1, percent)
Source: CBT
0
20
40
60
80
100
120
140
160
96 97 98 99 00 01 02 03 04 05 06 07 08
71.3
58.3
48.3
36.033.7
27.0
76.2
0
10
20
30
40
50
60
70
80
90
2002 2003 2004 2005 2006 2007 2008 Sep
Central Bank FX Reserves (2002- September 2008, billion USD)
3434
Prospects for World Economy
Challenges for the world economic outlook• Coupling, • Further squeeze in liquidity and increase in funding cost,• Further deterioration of expectations and confidence in
international markets,• Slowdown in world economic growth,• Unemployment,• New architecture of financial markets
• Consolidation• Reshaping of financial institutions
• Need for effective regulation and supervision,• Coordination and cooperation among both
local and cross border authorities.
MEHMET YÖRÜKOĞLU
CENTRAL BANK OF TURKEYDEPUTY GOVERNOR
Thank you.
October 2008
3636
0
2
4
6
8
10
12
Ç1 Ç2 Ç3* Ç4
20082007
-10
0
10
20
30
40
03-0
7
04-0
7
05-0
7
06-0
7
07-0
7
08-0
7
09-0
7
10-0
7
11-0
7
12-0
7
01-0
8
02-0
8
03-0
8
04-0
8
05-0
8
06-0
8
07-0
8
08-0
8
General Budget Primary Expenditures and Tax Revenues
(March 2007 – August 2008, year-on-year change, 3-month moving average, percent)
Tax Revenues
Primary Expenditures
Source: Ministry of Finance
Central Government Primary Balance (Program defined, 3-month total, 2006 Q1- 2008 Q3*,
TRY billion)
*July-August averageSource: Undersecretariat of Treasury
Public Sector
3737
46
78 8172
100108
117128
139155
63 66 68 73
-120
-80
-40
0
40
80
120
160
200
2005 2006 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1
FX AssetsFX Liabilities
Net FX Position
39.9
22.9
17.6
60.1
0
10
20
30
40
50
60
70
2008 2009 2010 2011 and later
The FX position of the non-banking sector was USD 73.8 billion as of the first quarter of 2008.
Short term net FX position of the real sector is about 2 billion USD.
Maturity composition of the real sector debt has extended considerably.
The FX position of the non-banking sector was USD 73.8 billion as of the first quarter of 2008.
Short term net FX position of the real sector is about 2 billion USD.
Maturity composition of the real sector debt has extended considerably.
FX Position of the Corporate Sector (2005 – 2008 Q1, billion USD)
Maturity Composition* of the Long-term External Debt of the Corporate Sector
(as of July 2008, billion USD)
* Days to maturity Source: CBT
Source: CBT
Corporate Sector
3838
58 9
12
17
23
5760
63
0
10
20
30
40
50
60
70
2004 2005 2006
Households
In Turkey, the practice of variable interest rate for consumer loans is limited. FX
denominated loans are not extended to consumers and companies with no FX income.
FX-indexed consumer loans make up only 4.1 % of total amount of consumer loans.
Household indebtedness is at a low level compared to European Union and Eastern
Europe countries..
In Turkey, the practice of variable interest rate for consumer loans is limited. FX
denominated loans are not extended to consumers and companies with no FX income.
FX-indexed consumer loans make up only 4.1 % of total amount of consumer loans.
Household indebtedness is at a low level compared to European Union and Eastern
Europe countries..
4.13.93.6
4.8
6.4
8.6
0
2
4
6
8
10
12
14
16
18
20
2003 2004 2005 2006 2007 2008 Eylül
Source: CBT
Ratio of FX-indexed Consumer Loans to Total Consumer Loans
(2003 – September 2008, percent)
Ratio of Household Liabilities to GDP (2004-2006, percent)
European Union
Eastern Europe
Turkey
Source: ECB, CBT
3939
Parallel to the economic activities that gained pace between 2002 and 2007, the number
of bad checks increased in line with the number of bank checks used.The ratio of the
amount of bad checks to the total checks submitted to the clearing house, which was
6.8% in 2003, declined to 5.5% in 2007. This ratio stood at 5.1% as of July 2008.
Likewise, the ratio of protested bills to commercial loans (an indicator of commercial
activities) declined to 2.9% in Augustos 2008 after reaching 11% in 2002.
Parallel to the economic activities that gained pace between 2002 and 2007, the number
of bad checks increased in line with the number of bank checks used.The ratio of the
amount of bad checks to the total checks submitted to the clearing house, which was
6.8% in 2003, declined to 5.5% in 2007. This ratio stood at 5.1% as of July 2008.
Likewise, the ratio of protested bills to commercial loans (an indicator of commercial
activities) declined to 2.9% in Augustos 2008 after reaching 11% in 2002.
Commercial Activities
0
2
4
6
8
10
12
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Ratio of the amount of Protested Bills to (12 months, cumulative, real) Total Commercial Loans (January 1999 – August 2008, real, percent)
Ratio of Bad Checks to the Total Amount of ChecksSubmitted to the Clearing House
(2003-2008*, percent)
5.6
6.8
6.0
5.2
5.5
5.1
4
5
6
7
2003 2004 2005 2006 2007 2008*
* January-July averageSource:CBT, ICHC
Source:CBT
4040
Turkey
Malaysia
Thailand
S. Korea
Israel
S. AfricaChile
MexicoBrazilRomania
Russia
Czech Republic
Hungary
Poland
-100
0
100
200
300
400
500
-2 0 2 4 6 8 10
Real Policy Rate in August 2007 (ex-ante)
Change in the Inflation between August2007 and
August 2008 (basis points)
Inflation and Policy Rates Developing countries that followed a tight monetary policy in 2007 were in better
position to resist inflationary pressures in 2008 as compared to countries that followed accomodative monetary policies.
Developing countries that followed a tight monetary policy in 2007 were in better position to resist inflationary pressures in 2008 as compared to countries that followed accomodative monetary policies.
Source: Central Banks
Change In Inflation Rate and Real Policy Rates In Developing Countries