The Turkish Banking sector is expected to operate in crunchy year in 2014. The concerns related with Fed’s actions that might result with the end of monetary expansion clearly signals that the year 2014 might be tough one for the emerging economies. If the much feared action will be taken by the Fed it seems that the amount of liquidity that have been financing high growth in the emerging markets might dry up. Banking industries that are confronted with such a scenario in the emerging markets will have to be well regulated in order to deal with such market difficulties.
Especially given the American experience with the banking sector in 2008 crisis when the country was rocked by the banking scandals should serve as an example for the global banking sector to assure the authorities that such a critical sector should be well regulated. What the American experience had already thought us is the need for banking regulations with regard to two specific areas; predatory lending practices and toxic assets. Especially the creation of toxic assets by dividing the subprime mortgages and combining them with various different financial instruments had created an enormous risk both for the investors and for the market itself. Such toxic assets when combined with predatory lending practices where the creditors not only have lent enormous amounts of credits that the barrowers were not capable of paying back but also have deliberately urged them to take such credits. This is a grave problem that the industry has to deal not with more deregulation but with more regulation.
Turkish Banking Industry: A Well Regulated Market
Turkish banking industry is a well regulated one. Especially the banking crisis that have taken place in 2001 led the Turkish authorities to regulate the banking industry. Turkish banks today do not only have much better lending practices but also have much healthier capital adequacy rates. The industry has already achieved compliance with the Basel II standards and has taken a headway for the compliance with the Basel III standards compared to many European countries.
However strong the Turkish banking system it is clear that the year 2014 will be a very difficult one. Especially problematic for the Turkish economy is the low level of national savings which stands only around 12% of the GDP. Such a low level of national savings have already been combined with a high current account deficit that exceeds USD$ 60 billion and created a concern for the shape that the national economy will take. Expectedly the authorities have recently taken measures to cut down spending in order to boost national savings. This policy of spending cuts means a banking sector which has to find a way to operate in a market where demand for banking credits have been made reduced by regulations. Especially important for the Turkish banking sector is the latest regulations that has reduced the number of installments in to one in purchases for consumer electronics and restricted the number of installments for automobile purchases to 24 where the previous regulation had allowed number of installments up to 48. Given the heavy dependence of the Turkish consumers on banking credits in the form of long term installments, this latest regulation will make the banking industry to shift its focus. Turkish banks are expected to shift their focus away from the average citizen, who only has the financial capacity to pay back the loans in long term installments, to the world of industry where the businessman has enough financial clout to pay back the loans lent by the banking industry. This might mean a good news for the national economy given the fact that in this scenario much needed credits will most likely be available not for fueling personal spending and hence lowering down national savings but for the industrial world where the growth means more employment for the Turkish people and better growth for the national economy. Therefore such a process might end with the right allocation of much needed credits in the country.
Herdem Law Firm, Istanbul Turkey