Banking Sector and Foreign Banks
in Turkey
Ekrem Keskin
December 2008
Banking sector and foreign banks in Turkey, December 08
2
Content
Change in economic environment and impact on the banking sector
Selected figures; comparison of sector and foreign-owned banks
Recent issues
Banking sector and foreign banks in Turkey, December 08
3
Change in economic environment
Banking sector and foreign banks in Turkey, December 08
4
Savings gap widened, mainly due to the private sector as the public sector improved its balance
Savings balance (As % of GNP)
-15
-10
-5
0
5
10
15
02 03 04 05 06 07 exp 08 prg
Total State sector Private sector
Banking sector and foreign banks in Turkey, December 08
5
In private sector, savings rate declined rapidly as fixed investment rate accelerated due to investments in new technology and expanding capacity
Private sector; savings and investment rates (as % GNP)
8
10
12
14
16
18
20
22
24
26
02 03 04 05 06 07 08 exp
Total Private sector
Banking sector and foreign banks in Turkey, December 08
6
The share of external borrowing in fixed capital investment
Private sector: external borrowing/fixed capital investment (%)
0
5
10
15
20
25
02 03 04 05 06 07 08
Banking sector and foreign banks in Turkey, December 08
7
Jump in net capital inflow from an annual averege of USD 3 billion in the 90’s to USD 50 billion in 2008 September
Net capital flows (USD billion)
-10
0
10
20
30
40
50
60
02 03 04 05 06 07 08 Spt
Non-financials FDI Portfolio investments Financials
Banking sector and foreign banks in Turkey, December 08
8
Private sector increased its borrowing from external markets
External debt(USD billion)
Public CB Private Financial Non-financialSector Sector sector sector
02 64.534 21.999 43.165 10.179 33.59608 June 77.650 16.204 190.549 65.860 124.689
Banking sector and foreign banks in Turkey, December 08
9
High growth performance: Stable and strong growth, over the long term average of 4.3% between 2002 and 2007 before a steady slowdown in 2008.
GDP growth (at 1988 prices, annual % chg)
0
1
2
3
4
5
6
7
8
9
10
02 03 04 05 06 07 08
Banking sector and foreign banks in Turkey, December 08
10
Rapid disinflation: Inflation has declined to the historically lowest level during the free market economy, although it’s decending trend halted recently and has reversed slightly.
Inflation (yoy % chg) and CB policy rate (%)
05
10152025303540455055606570
02 03 04 05 06 07 08
Policy rate Inflation
Banking sector and foreign banks in Turkey, December 08
11
Substantial fiscal adjustment: One of the main reasons behind the positive outcomes was the tight fiscal policy which led to a substantial decline in PSBR and budget deficit
Public sector balance and budget balance (as % of GDP)
-15
-13
-11
-9
-7
-5
-3
-1
1
3
02 03 04 05 06 07 exp 08 prg
Public sector balance Budget balance
Banking sector and foreign banks in Turkey, December 08
12
Reduced public sector debt...
Public sector debt(As % of GDP)
0
10
20
30
40
50
60
70
02 03 04 05 06 07 08 Spt
Domestic External
Banking sector and foreign banks in Turkey, December 08
13
As the public sector borrowed less, loans to private sector soared
PSBR and loans (As % of GDP)
-2
3
8
13
18
99 00 01 02 03 04 05 06 07 08Spt
10
15
20
25
30
35
40
PSBR Loans (right)
Banking sector and foreign banks in Turkey, December 08
14
Stronger shareholders’ capital and free capital enabled the banking sector to change its risk structure...
Shareholders' equity and free capital (USD billion)
0
10
20
30
40
50
60
70
02 07 08 Spt
Shareholders' equity Free capital
Banking sector and foreign banks in Turkey, December 08
15
...from the public to private sector risks
0
10
20
30
40
50Risk weighted with %0
Risk weighted with %20
Risk weighted with %50
Risk weighted with %100
'02
'08 Spt
Banking sector and foreign banks in Turkey, December 08
16
Capital adequacy ratio remained rather above the level of BRSA’s regulation
Capital adequacy (%)
15
18
21
24
27
30
33
02 03 04 05 06 07 08 Spt
Banking sector and foreign banks in Turkey, December 08
17
Well-diversified loan portfolio
Breakdown of total loans (%)
02 08 Spt
Corporate 87 67 SMEs na 27Consumer+credit cards 13 33 Consumer 4 24 Housing 1 11 Automobile 1 2 Others 2 11Credit cards 8 9Total 100 100
Banking sector and foreign banks in Turkey, December 08
18
Higher ROE but is sufficient enough?
The gap between REO and return on G-securities
-60
-50
-40
-30
-20
-10
0
10
02 03 04 05 06 07 08 Spt
Banking sector and foreign banks in Turkey, December 08
19
Higher risks, lower ROE
Risk weighted assets/total risky assets and ROE (%)
08 Sept
07
060504
0302
40
45
50
55
60
65
70
10 12 14 16 18 20
Ris
ks
REO
Selected figures; comparison of the sector and
foreign-owned banks
Banking sector and foreign banks in Turkey, December 08
21
Ownership structure(September 08, % share in total) Free Shareholders' Assets Loans
float equity
Deposit banks 21 87 97 97State-owned banks 15 21 29 24Private banks 30 40 43 43Foreign banks* 1 26 25 30*weighted share in non-public shares
Banking sector and foreign banks in Turkey, December 08
22
Loans and financing(September 08, %) Sector Foreign
banks*
Loans/assets 53 65Loans/deposits 86 120Loans+securities portfolio/deposits 131 148External borrowing/loans 25 32Consumer loans/total loans 33 38*Majority shares owned by foreign investors
Banking sector and foreign banks in Turkey, December 08
23
NPLSector Foreign
banks(September, %)NPL (before provisions)/loans 3,2 3,3NPL (after)/loans 0,6 0,7Provisions for NPL 82,5 77,5(November, %)NPL/Consumer loans+credit cards 3,5 4,4 NPL/Consumer loans 3,1 2,6 NPL/Credit cards 6,9 8,6
Banking sector and foreign banks in Turkey, December 08
24
TL-Fx structure(%) Sector Foreign
banks*
TL assets/total assets 72 78TL liabilities/total liabilities 67 61TL loans/total loans 74 82TL deposits/total deposits 67 59*Majority shares owned by foreign investors
Banking sector and foreign banks in Turkey, December 08
25
Breakdown of risk weighted items (%)(September 08) Sector Foreign
banks
Total of risk weighted assets 100 100 0 wighted items 21 10 20 wighted items 6 6 50 wighted items 11 15 100 wighted items 50 56 Value at market risk 3 4 Value at operational risk 8 9
Banking sector and foreign banks in Turkey, December 08
26
Capital adequacy and profitability(September 08, %) Sector Foreign
banks*
Shareholders equity/risk w. assets 17,5 15,0Roe 17,0 12,0Roa 2,1 1,6*Majority shares owned by foreign investors
Banking sector and foreign banks in Turkey, December 08
27
Main issues in economy:
• Uncertainties in international environment• Reliance on external borrowing• Difficulties of financing of balance of payments • Pressures on fx liquidity• Contraction in economic activity• Rising costs of financing of private sector• High degree of currency substitutions• Ownership changes in banks in Europe
Banking sector and foreign banks in Turkey, December 08
28
• Maturity structure of balance sheet
up to 3 mths up to 6 mths
• Loans 29% 55%• Deposits 90% 94%
• Lack of information of recent position of clients• Slowdown in loans• Rising capital or limiting risks?• Prospective level of capital adequacy
• NPLs
• Interest rate risks
• Earning pressures to feed capital
Banking sector and foreign banks in Turkey, December 08
29
Thank you.
Banking sector and foreign banks in Turkey, December 08
30
Consumers' position(As % of GDP)
2002 2008 Spt
Saving deposits 27 26G-securities 6 2Total 33 28
Consumer loans 2 12
Consumer loans/total 6 42
Banking sector and foreign banks in Turkey, December 08
31
Banking sector
Daily selected figures 03.10.2008 02.12.2008 Chg
02.12/03.10
TL loans TL million 274.479 265.540 -8.939
TL deposits TL million 285.012 301.466 16.454
Repos TL million 44.810 42.326 -2.484
TL deposits+repos TL million 329.822 343.792 13.970
Fx loans USD million 71.268 69.627 -1.641
Fx deposits USD million 109.075 98.183 -10.892
Fund borrowed from abroad USD million 55.640 54.653 -986
Fx deposits+funds borrowed from abroad USD million 164.715 152.837 -11.878
Non-residents holdings of G-securities TL million 32.634 26.847 -5.787
Non-residents holdings of G-securities USD million 25.080 16.842 -8.239
Securities portfoli of banking sector TL million 180.012 194.603 14.591
Banking sector and foreign banks in Turkey, December 08
32
Ratios (%)
03.10.2008 02.12.2008
TL loans/TL deposits 96 88
TL loans/TL deposits+repos 83 77
Fx loans/Fx deposits 65 71
Fx loans/Fx deposits+fund borrowed from abroad 43 46
Total loans/total deposits 87 83
Total loans/total deposits+repos+funds borrowed 78 75
S.portfolio+ t. loans/t deposits+repos+fund borrowed 101 98
Source: BRSA
Banking sector and foreign banks in Turkey, December 08
33
Corporates' monetary position with banks in TurkeyTL Fx
billion TL billion USD
Assets* 109 33Deposits 58 30Securities 51 3
Liabilities* 118 80Loans form Turkey 118 80
Assets-liabilities -9 -47
According to the CB, fx position is about USD 80 billion* Including offshore branches
Banking sector and foreign banks in Turkey, December 08
34
Maturity structure (Cumulative, %)
Demand up to 1 mths up to 3 mths up to 6 mths over 6 mths
Deposits 15 43 90 94 100Loans 13 20 29 55 100
Banking sector and foreign banks in Turkey, December 08
35
External financing requiremens and available sources(Billion USD)
2009
Current account deficit 20-30Debt repaymets 84 M- long-term 36 Short-term 48Financing needs 104-114Financing FDI 10 Portfolio ? Private sector 60 Public sector ?Change in reserves 15
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