12 Aug

2008 global economic meltdown had served as an important wake up call for the global banking industry. The complicated web of interrelated financial instruments created by investment banking gurus, accompanied by a lax regulatory regime came to create one of the biggest financial disasters after the Great Depression and itself termed by many as the Great Recession costing millions of people their savings, jobs and houses. The inevitable response of the authorities came in the form of better banking regulations that would hamper the investment banks’ capabilities to influx the market with toxic assets. Such a trend towards stronger regulations and a keener implementation of such baking rules is definitely a good news for the industry, even though some of the players benefiting from the lacunaes in the system had to accept them grudgingly. Many well established European banks are rearranging their finances to comply with the requirements of the Basel III regulations and many large American banks are re-evaluating their positions in the international markets which is increasingly leading them to trim down riskier and noncore assets in overseas.

The Trend in Turkey: A Concert with the Global Banking Industry

The state of the banking industry shows striking parallels with the ongoing trends in world banking industry. The regulatory tendency is strong and the country’s banking sector has already meet the requirements of the Basel II and some requirements of the Basel III regulations. The rise of the Islamic complaint financial instruments like Sukuk and Murabaha in the Turkish banking had brought another unanticipated but well received development that puts Turkish banking industry well in concert with the rising trend in the world banking industry; the blooming of the risk aversive financial instruments. Such Islamic complaint financial instruments heavily rely on traditional banking methods where tying and bundling of potentially toxic assets are strictly prohibited due to the Islamic nature of the instruments. Hence a cautious regulator regime plus the introduction and growth of the relatively safe financial instruments like the Islamic compliant ones spearheads Turkey to be one of the most resilient banking industries in the world.

How to Secure a Stronger Banking Industry in Turkey?

However there are things to be done in order to have a stronger banking sector in Turkey. One of the most crucial thing that the Turkish banking industry should do is to invest in technology. The technological advancement of the industry will create more chances for the industry to reach out to more people in the distant parts of the country and to enable a platform for the new demands of the economically well of customers that would require cutting edge technologies to be satisfied by the Turkish banking industry.

Alongside the investments for the technological advancement the industry should also focus on how to remain strong in an ever globalizing world where fierce competition in the banking industry is the rule. The Turkish banking industry, to remain strong, in the face of such fierce competition should produce tailor made products for its customers. The standardized banking products will not satisfy the customers especially given a shift in Turkish economy where the efforts for cutting down personal spending is high and the banks’ opportunities to reap lucrative returns from consumer credits are declining. Hence the Turkish banking sector should design tailor made products that would especially meet the needs of the industrialists given the current efforts to shift the Turkish economy from consumption to production.

Conclusion

Following the market clash in 2008 the global banking industry has started to adopt a more strict regulatory approach which is intended to prevent the creation of toxic financial instruments that had led to the global economic crisis. Turkish banking industry has already made the necessary regulatory arrangements that would lead its banking industry to comply with the Basel II and Basel III regulations on the one hand and to prevent an influx of toxic assets to the Turkish market on the other hand. Therefore the Turkish banking industry has a strong regulatory base that would serve as an important safeguard for the customers. However given the increasing competition worldwide for the banking industries, the Turkish banking industry should do more to invest in new and better technologies and keep abreast with its customers to better understand their needs to design tailor made products that would satisfy their needs.


Herdem Law Firm, Istanbul Turkey

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