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Western EuropeNovember 6 2006

A reformed and financed Turkey must not slip the EU’s grasp

There is a strong resurgence of EU banks investing in Turkey. At a time when clashes of religions and secular systems are a concern worldwide, Turkey is an important example of what can be achieved.
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Citigroup has emerged from the acquisition limbo imposed by the US Federal Reserve and made its largest acquisition since 2003, buying a 20% stake in Turkey’s premier bank, Akbank, for $3.1bn. The deal is significant not just from Citigroup’s perspective but also as it reflects the huge international interest in the Turkish banking market at a time of critical EU accession negotiations for Turkey.

For Citi, the minority stake in Akbank, which has 658 branches across Turkey, strengthens its retail presence in a relatively underbanked market, which has grown at an attractive 7.8% a year over the past four years. The challenge for Citi, however, will be how to blend its 20% stake in the country’s top franchise with its existing 47-branch network, not an easy task.

For Turkey, the past 18 months has brought a plethora of foreign banks, with acquisitions by BNP Paribas, Fortis, Dexia, UniCredit and two from Greek banks, National Bank of Greece and EFG Eurobank, among others. Lured by the young and expanding market of 73 million people, foreign banks have jumped at the prospects offered by the 87.3% annual growth in retail lending and 183.6% annual growth in housing loans over the past four year. Also, with the housing loan/GDP ratio for Turkey at 0.6%, compared to 39.8% in the EU25, the potential is huge. But as bankers pile in to grasp the opportunities offered by a much reformed Turkey, the country’s road to EU membership faces increasing obstacles over growing European protectionism, Cyprus, French concerns over Armenia and human rights issues. Formal suspension of EU talks could be decided this year.

While the EU has, in effect, a free put-option on Turkey, the prospect of Turkey drifting away from the EU orbit is somewhat alarming. At a time when the clash of religions and secular systems are a major concern across the globe, Turkey is a key example of what can be achieved.

Bankers have acknowledged the reform process taking place in Turkey and have had the confidence to invest. Turkey’s EU negotiations were never thought to be easy but they cannot be allowed to collapse. As Citi and many European banks have demonstrated, Turkey represents its region’s future. The obstacles to EU membership, however complex, need to be overcome.

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Read more about:  Analysis & opinion , Western Europe , Turkey