Turkish banking system


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Turkish banking system

  1. 1. Turkish Banking System<br />Ekrem Tufan<br />Assoc. Prof. Dr. (PhD)<br />Visiting Professor <br />School of Business Administration in Karvina  <br />December7, 2010<br />
  2. 2. Contents<br />History of Turkish banking system<br />Ottoman Empire Period<br />National Banks Period<br />Public Banks Period<br />Private Banks Period<br />Planned Period<br />Liberal Period<br />Restructured Period<br />
  3. 3. Contents<br />Classification of Turkish banksandsomenumbers about Turkish bank system<br />Commercial (deposit) banks<br />Public banks<br />Private banks<br />Banks under supervision of Turkish Savings Deposit Insurance Fund<br />Foreign banks<br />Investmentanddevelopment banks<br />Public banks<br />Private banks<br />Foreign banks<br />Interest free Banks (Islamic Banks)<br />Last economic crisis and Turkish banking system<br />References<br />
  4. 4. History of Turkish Banking System<br />
  5. 5. Ottoman Empire Period (1847-1923)<br />The first banknote was issuedby Ottoman Empirein 1840 for covering budget deficits<br />The first bank was founded in 1847 namely İstanbul Bank by Galata Bankers who wereminority of the empire<br />Ottoman Bank was founded in 1856. It can be accepted as a central bank. The bank was founded with British capital to act as anintermediary between Ottoman Government and the foreign lenders and financiers forprocurement of foreign debts. French interests became a partner to the Bank in 1863and Austrian interests in 1875<br />Ziraat Bank was founded in 1888 to support agriculture<br />
  6. 6. National Banks Period (1923-1932)<br />Turkish Republic was foundedby Ataturk in 1923<br />Izmir Economy Congress held in 1923with the participation of the top officials of the government as well as leaders of the agriculture,commerce and industry sectors.<br />Turkey’s first private bank was founded in 1924, namely Türkiye İşbankası.<br />Turkey’s firstdevelopment bank was founded in 1925, namely Türkiye Sanayi ve Maadin Bankası (This Bank intended to disburse mediumand long-term loans to private industrial enterprises and offer them information onfinancial, economic and technical subjects)<br />
  7. 7. National Banks Period (1923-1932)<br />EmlakveEytem Bank was founded in 1927 for the purpose of extending housingloans.Then it’s name changed as Emlak ve Kredi Bank in 1946<br />Turkish central bank was founded in 1930<br />
  8. 8. PublicBanks Period (1933-1944)<br />Turkish economy characterized by agriculture in 1930’s<br />Great depression generated low income people who feed on agriculture<br />State economic enterprises started<br />Some banks were founded by the state such as Sümerbank (1933), Bank of Municipalities (1933), Etibank(1935), Denizcilik Bank (Turkish Maritime Bank)(1937)and Halk bank (People’s Bank)(1938)<br />
  9. 9. PublicBanks Period (1933-1944)<br />The First Industry Plan put the target of establishing 20 factories to be involved predominantlyin manufacturing industry<br />The Second Industry Plan wasprepared in 1935 containing investment plans for about 100 industrial enterprises to beengaged in mainly mining and energy sectors<br />Türk Ticaret Bankası (Turkish Trade Bank) was founded in 1930 which was the second private bank of Turkey<br />Ataturk died in 1938<br />Second world war<br />
  10. 10. Private Banks Period (1945-1960)<br />Private sector improved<br />Second World War speculative atmosphere generated affluence class (rich people)<br />New era in politic area, Democrat Party which supports economic liberalismprincipals won the election in 1950<br />Rapidincreases in investments, modern enterprises,national income and population, and growth of the cities<br />
  11. 11. Private Banks Period (1945-1960)<br />Yapı veKredi Bank(1944), Garanti Bank(1946), Akbank (1948), Pamukbank (1955) and Türkiye SınaiKalkınma Bank(1950) have all been founded in thisperiod<br />Risinginflation, swelling foreigntrade deficits and increasing external debts starting from 1953<br />Stability Program announced in 1958, USdollar rate was increased to 9 lira from 2.8 lira<br />
  12. 12. Planned Period (1960-1980)<br />Fromthe late 1950sstagnation started<br />Closedeconomy applicationsstarted<br />No new foreign banks and – except for some specific cases – no new commercialbanks were allowed to be founded<br />A total of 7 banks - 5 development banks and 2 commercial banks – were founded duringthe planned period<br />Firstbank founded directly by foreign capitalnamely American-Turkish Foreign Trade Bank<br />
  13. 13. Planned Period (1960-1980)<br />Turkish commercial banks have become holding-banks<br />
  14. 14. Financial Liberalization and Opening Period (1981-2001)<br />1980, a development policy that targeted opening-up the economy and producing forexports, based on market economy, was adopted in place of an industrialization strategy<br />Flexible exchange rate and positive real interest rate policies have been started for thepurpose of supporting this new strategy<br />Internationalsupervision andinternational banking standards have been introduced to the banking system (1985)<br />
  15. 15. Financial Liberalization and Opening Period (1981-2001)<br />All persons and entities resident in Turkey were allowedto hold foreign currencies and open foreign exchange deposit accounts<br />The CentralBank of Turkey started toopen market operations in 1987<br />Foreign exchange market wasestablished in 1988. It was an unofficial market. <br />Foreign exchange transactions and capital movements becamefree in 1989<br />
  16. 16. Financial Liberalization and Opening Period (1981-2001)<br />Convertibility of Turkish Lira was announced in 1990<br />Electronic fund transfers became functional in1992<br />Legal and institutional structure required for capital markets instruments has been establishedvia Capital Markets Law in 1982.<br />IstanbulStock Exchange started trading in1986.<br />
  17. 17. Financial Liberalization and Opening Period (1981-2001)<br />New products and services such as consumer loans,credit cards, foreign exchange deposit accounts, leasing, factoring, forfeiting, swap,forward, future, option, automatic teller machines, point of sales terminalshave been introduced<br />Turkish banking system in economic crisis in 1994<br />Convergenceof Turkish banking sector withBasel Committee’s Recommendations, European Union directives, and other internationalregulations<br />
  18. 18. Financial Liberalization and Opening Period (1981-2001)<br />The Banking Regulation and Supervision Agency (“BRSA”) was established for takingand putting into practice the decisions regarding banks’ start of operations, monitoringof their activities, supervision of their activities, deciding on the results of their audit andsupervision, and termination of the operation of a bank<br />Turkish banking system went into crisis again! (1998)<br />
  19. 19. Restructured Period (2002-2007)<br />“Program for transition to strong economy”, put in the practice and cover 2004<br />An amendment to the Central Bank Law defined it in clear words that the Bank’s duty isprice stability, and the Bank was delegated instrument independence, and a MonetaryPolicy Board was established<br />State-owned banks were restructured, and collected under a joint management<br />
  20. 20. 2007 to today<br />USA economic crisisstarted in 2009 and noone knows when it will end!<br />Turkish Central Bank took thefollowing measures:<br />• Resumed its activities as an intermediary inthe foreign exchange deposit market until theremoval of uncertainties in international markets(9 October 2008)<br />• Raisedits transaction limits by twofold toUSD 10.8 billion (23 October 2008) andextended the lending maturity to 1 month from 1week in the foreign exchange deposit market(21 November 2008)<br />
  21. 21. 2007 to today<br />Adopteda strategy to use foreign exchangereserves to primarily support the foreignexchange liquidity need of the banking system<br />The reserve requirement ratio was unchangedat 6 percent in TL liabilities, but it was loweredto 9 percent from 11 percent in foreignexchange liabilities (28 November 2008) <br />Withthis measure, the Bank provided an additionalliquidity of USD 2.5 billion to the bankingsystem<br />
  22. 22. 2007 to today<br />• Increased the exports rediscount credit limitby USD 500 million to USD 1 billion in order tocontain the effects of the global crisis onindustry sectors<br />Additionally, the rules andprinciples applicable to the exports rediscountloan limit were rearranged for rendering the useof these loans easier<br />
  23. 23. Contentsagain!<br />Classification of Turkish banksandsomenumbers about Turkish bank system<br />Commercial (deposit) banks<br />Public banks<br />Private banks<br />Banks under supervision of Turkish Savings Deposit Insurance Fund<br />Foreign banks<br />Investmentanddevelopment banks<br />Public banks<br />Private banks<br />Foreign banks<br />Interest free Banks (Islamic Banks)<br />Last economic crisis and Turkish banking system<br />References<br />
  24. 24. How to work Islamic Banks?<br />First interest free bank was founded in Egypt in 1963<br />Interest free banking instruments:<br /><ul><li>Institutional Financial Support (Murabaha Transactions): The company chose whatever it needs such as goods, real estate property or services then the bank pay for them to the seller. The company owes the bank. The bank asks collateral (guarantee) from the company. (Turkish Islamic Bank System mainly based on this system)</li></ul>Transactions can be based on only real things, no derivatives<br />
  25. 25. How to work Islamic Banks?<br />When you chose the goods for murabaha you have to obey Islamic rules such as not choosing alcohol or cigarettes<br />Ownership of goods for murabaha transactions will be Islamic bank till tobe sold<br />The goods should be bought from a different company. So, If a company has different branches it can not apply murabaha betweenthem<br /><ul><li>Individual Financial Supports: </li></ul>This is a basic consumer credit and mortgage credit application. One difference is Islamic bank do not give credit to customer as money<br />
  26. 26. How to work Islamic Banks?<br /><ul><li>Leasing: No buy and lease back type of leasing
  27. 27. Goods against documents financing: </li></ul>Profit&lossIslamic bank buys goodsagainst documents by cash and sell them forward<br />The goods should be real<br /><ul><li>joint venture investments (Müşaraka financing):</li></ul> This is simple joint venture application. Bank be a partner especially industry investments. It is alsopossible fortrade goods<br />
  28. 28. How to work Islamic Banks?<br />Descendingmüşaraka: All shares will be bought by the company from the bank in the future<br />Permanentmüşaraka: Being partnership continues at the end of the project<br /><ul><li>Capital&labour cooperation investment (Mudaraba financing): </li></ul>Bank puts money to invest while company puts just labor force and know-how<br />The bank asks profit rate from the company<br />We can call it as venture capital<br />
  29. 29. How to work Islamic Banks?<br /><ul><li> Salam and exception (Future sale):</li></ul>We can callit as forward transactions<br />It supports working capital of companies<br />Bank pay for good in spot market with determineddeliverydate and price<br />Exception transactions looks like salam transactions but there are few differences<br /><ul><li>Islamic Bond:</li></ul>This is a simple asset backed securities transaction<br /><ul><li>Islamic Insurance:</li></ul>The main difference from the normal insurance system is taking consider where the portfolio money was spend<br />
  30. 30. Contentsagain!<br />Classification of Turkish banksandsomenumbers about Turkish bank system<br />Commercial (deposit) banks<br />Public banks<br />Private banks<br />Banks under supervision of Turkish Savings Deposit Insurance Fund<br />Foreign banks<br />Investmentanddevelopment banks<br />Public banks<br />Private banks<br />Foreign banks<br />Interest free Banks (Islamic Banks)<br />Last economic crisis and Turkish banking system<br />References<br />
  31. 31. Source: Basci Erdem, www.tcmb.gov.tr<br />
  32. 32. Source: Basci Erdem, www.tcmb.gov.tr<br />
  33. 33. Source: Basci Erdem, www.tcmb.gov.tr<br />
  34. 34. Source: Basci Erdem, www.tcmb.gov.tr<br />
  35. 35. Some Turkish banking indicators (2010)<br />
  36. 36.
  37. 37. S&P revises Turkey Banking andcountry risk assessment<br />The following statement was released by the rating agency at 25 April 2010:<br />The Turkish banking system is now more resilient to shocks<br />Banks currently carry moderate levels of nonperforming and restructured loans <br />Turkey's system-wide credit profile is not threatened with the potential unwinding of a real estate bubble<br />System-wide funding is supported by good retail franchises, but banks have a relatively short maturity funding profile and consequently the system shows a mismatch between assets and liabilities<br />
  38. 38. Turkey's Banking Regulation & Supervision Agency’s(BDDK)<br />This banking report released by BDDK in June 2010:<br />Turkish banking sector's capital adequacy ratio (CAR) was posted as 19.2 percent in June, 2010<br />The banking sector's net profit in June, 2010 increased 10.1 percent and reached 12.1 billion Turkish lira (TL) when compared to the same period of 2009 (1 USD equals 1.5 TL)<br />
  39. 39. Turkey's Banking Regulation & Supervision Agency’s(BDDK)<br />Banking sector obtained 56.7 percent of its profit from private banks, 28.7 percent from state banks, 7.7 percent from foreign banks, 3.6 percent from development and investment banks, and 3.1 percent from participation banks<br />The sector's number of personnel increased 4,489 to 188,694 and the number of branches rose 147 to 9,728 in the first half of 2010<br />
  40. 40. Turkey's Banking Regulation & Supervision Agency’s(BDDK)<br />Banking sector grew 3.2 percent in the first quarter of 2010 and the loans of the sector rose 15.8 percent in the first half of 2010<br />According to the report, banking sector's equities increased 2.1 percent and reached 119.3 billion TL in the second quarter of 2010<br />
  41. 41. References<br />http://www.tbb.org.tr/eng/Arastirma_ve_Yayinlar/Yayinlar_Detay.aspx (The presentation mainly prepared from this source)<br />http://www.tkbb.org.tr/index.php?option=com_content&task=blogsection&id=30&Itemid=382<br />Eken Mehmet Fehmi, Faizsiz Bankacılık Modelleri ve Türkiye Uygulamaları, Unpublished MBA Thesis, 2005, www.yok.gov.tr<br />
  42. 42. References<br />http://www.bddk.org.tr/WebSitesi/english/Announcements/Press_Releases/76675%20mart%20tarihli%20bas%C4%B1n%20a%C3%A7%C4%B1klamas%C4%B1%20terc%C3%BCme.pdf<br />http://www.google.com/url?sa=t&source=web&cd=4&ved=0CDMQFjAD&url=http%3A%2F%2Fwww.reuters.com%2Farticle%2FidUSWNA900020100421&ei=-2zwTIvJLo2VOu_6mfoJ&usg=AFQjCNFfe5n7B6MmIJCMyg_HXq5fcmhEcA<br />
  43. 43. Thanks for your patience…<br />http://etufan.wordpress.com<br />etufan@yahoo.com<br />