18 Oct

Introduction

The impressive growth of the Turkish economy during the past decade has been paralleled by the country’s banking sector. As of June 2013, Turkey has a diversified banking base with 49 different banks operating in the country employing around 208,000 people across 11,445 branches. The annual rate of branching in the sector is 6.8% and the growth of employment in the Turkish banking sector is 5.3%.

Across the sector, 45.7% of branches are owned by private banks, 27.8% by public banks and 18.3% by banks with foreign capital. Of the workforce employed in the Turkish banking sector, 44.6% work in private banks, 25.3% work in public banks and 19.7% work in banks with foreign capital.

Growth in banking sector

The total assets controlled by the banking sector grew by 11.5% during the first six months of 2013 and reached $1.528 billion. Despite global and Turkish economic fluctuations, the banking sector grew by 4.2% during the first quarter of 2013 and by 7% during the second quarter. The total credits issued by banks operating in Turkey grew by 4.9% in the first quarter of 2013 and by 10.5% during the second quarter.

In real terms, the credit issued by the banking sector has grown by TRY126.4 billion since the end of 2012 and reached TRY921.2 billion as of June 2013. The total volume of securities held by the sector stands at approximately TRY274 billion, as of June 2013, and the level of deposits has grown by 62.4%, amounting to TRY837.7 billon. As of June 2013, the net profit of the sector grew by 19.7% compared to the same period in 2012 and reached TRY13.859 billion.

As the numbers demonstrate, the Turkish banking sector is healthy, with a stable outlook. The regulatory framework to which the sector is subjected has played a prominent part in this success.

Regulatory framework

Following the 2008 global economic meltdown and the financial risks that later emerged, Basel II has increasingly been perceived as inadequate for dealing with such situations of financial collapse. Basel III has therefore come to the fore in order to buttress the previous Basel II agreement. The most critical change that Basel III has introduced is a new understanding for dealing with banks’ capital adequacy. In this regard, Turkey’s past experiences of extreme economic fluctuations have proved useful.

After the 2001 economic crisis in Turkey, a new regulation was adopted to reorganise the banking system along more stable lines. Reorganisation has disciplined the Turkish banking system to such an extent that it has emerged as the sole banking industry among Organisation for Economic Cooperation and Development countries that did not require public financial support after the 2008 global economic crisis. Moreover, through the regulations issued following the 2001 economic crisis in Turkey, the banking sector has managed to establish better internal auditing and controlling mechanisms. It has also attained high levels of liquidity, as well as a low leverage ratio and high levels of deposits. Given the transformation which the Turkish banking industry has already undergone, Turkey’s compliance with Basel III is expected to be smooth.

The Capital Adequacy Regulation was made compliant with the requirements of Basel II in 2007 and Basel II itself was adopted in Turkey in July 2012. As of March 2013, the capital adequacy ratio of banks operating in the Turkish market is 17.4% (ie, above the minimum level required by Basel III). The implementation of Basel III has already started and the deadline for the report period in relation to the Basel III leverage ratio has been set as January 2014.

The implementation of Basel III is expected to further strengthen macroeconomic stability in Turkey, contributing to the transparency of the country’s banking sector and clamping down on the grey economy.

Share on LinkedInShare on FacebookTweet about this on TwitterShare on Google+Email this to someone