Much of the success of the Turkish banking sector is down to the internal practices of individual lenders, says Akbank chairperson Suzan Sabancı Dinçer, which means that the sector can expect to remain resilient, even when wider economic conditions are not in its favour. 

The drop in the price of oil might appear as a windfall for energy-importing Turkey, and moves to reflate the eurozone yet another piece of good fortune for the country. However, Turkish banks have learned not to trust in luck. Instead, for more than a decade, the banking community has placed its chips on prudence, innovation and hard work. It is a wager that has more than paid off.

The result is that a well-supervised and strong financial sector has become the principal engine of Turkish growth. This is all the more remarkable given the notorious rut the economy found itself in 2001, when a dozen undercapitalised banks were forced to exit the system at a remarkable cost of 32% of gross domestic product. Since then, and despite the 2009 global crisis, the economy has continued to expand, on average, by 5% annually.

One great difference between 'now' and 'then' is that the Turkish treasury has put its fiscal house in order. The government has stepped back. It no longer crowds out the private sector, but itself relies on the entrepreneurial drive of its own people. Debilitating cycles of boom and bust have been replaced by steady and sustainable growth. A new banking law, in 2005, brought in effective regulation. However, Turkey’s large commercial banks were already poised to take advantage of the radical improvements in the macroeconomic environment.

Turkish delight

The financial sector thus has led the way. It did so in a variety of ways, from the increased sophistication of its risk management to its heavy investment in human resources, and in becoming centres of best practice and technological change. Intense competition among the main high street banks and new players arriving from beyond Turkey’s frontiers meant that Turkish banks developed a level of service and management expertise, which in many cases exceeds their European peers. One indication of the sector’s sound and transparent governance is that banks account for 35% of the Borsa Istanbul BIST 100 Index.

While banks fuelled Turkey’s economic recovery, they did so while still preserving high asset quality. Back in 2002, the non-performing loan ratio (NPR) stood at 17.6%. Now it lingers in the 3% range. The capital adequacy ratio stands well above the Basel requirement at an impressive 16%.

One of the drivers of the Turkish financial sector has been its ability to seize opportunity. Turkey has a youthful demographic – half the population is under the age of 30. Among the 'bankable' population, 25% do not bank at all and another 50% use only a very limited range of products. The sector remains underleveraged compared with developed markets elsewhere.

The huge promise implicit in these figures explains why the financial sector has attracted the lion’s share of foreign direct investment (FDI). Close to one-third of the $120bn that poured into Turkey as FDI between 2002 and 2014 went into banks. However, realising this potential is not just a case of grabbing the low-hanging fruit. It requires both effort and imagination. Banks themselves have developed new strategies for reaching a client base. For example, the number of customers banking by mobile phone more than doubled in the past year to reach 7 million.

Confronting risk

Turkish banks have undoubtedly benefited from but have also fuelled a new mood of consumer confidence. Growth rates of loans have gone up but private savings have, of course, declined – from 23.5% in the 1990s to 12% to 14% levels now. The high level of loan to deposits will be a future challenge. The drop in the price of oil may have corrected Turkey’s current account deficit, but the long-term challenge is to increase the level of individual savings.

Certainly, Akbank, the institution that I represent, welcomes the government's macroprudential measures to confront this risk – providing higher incentives for long-term savings, curbing excessive growth in consumer loans as well as maintaining vigilant monitoring. As an institution, it encourages the drive to increase household income by seeing more women at work and in responsible jobs.

Turkey’s problems are now those of what I call a 'normal' economy. It is in so many ways far more reliant than in any point in its history. In the bad old days it relied on the discipline of an International Monetary Fund standby programme to weather the storm. Now, Turkey relies on its own internal dynamic – and more specifically, the soundness of its banking sector.

Suzan Sabancı Dinçer is the chairperson and executive board member of Akbank.

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