Buttressed by an improving economy and foreign buyouts, including the National Bank of Greece’s acquisition of a controlling minority stake in Finansbank, Turkey’s eighth biggest bank, the nation’s banks are rapidly growing and forging global links.
The National Bank of Greece’s purchase of a 46% share in Finansbank for $2.77bn on April 2 is viewed as a vital step in improving the often hostile relations between Greece and Turkey and easing Turkey’s admission into the EU.
“The entry of Greek capital into the national banking system for the first time indicates Greek confidence in Turkey’s economy. The expansion of cooperation and cultivating of friendly ties are the main strategies of our government. We aim to develop our ties with the world, starting with our near neighbours,” deputy prime minister Abdulatif Sener told reporters at the time of the acquisition.
After the Finansbank deal, foreign companies, banks and institutional investors now control 26.3% of the assets of the Turkish banking system, Mr Sener said. He stressed that foreign ownership in the Turkish banking system could increase to 35% with a flurry of new mergers and acquisitions.
Five other Turkish banks are also holding talks to sell shares to international investors, Mr Sener added.
Investment has grown in both directions. A group of 320 Greek and 150 Turkish businessmen have also applied to the Central Bank of Greece to establish a new bank in Athens – Business Aegean Bank – with €60m of capital to foster trade between the two countries. The bank plans to have a branch in the Turkish Aegean port city of Izmir.
Foreign excursions
In addition, national banks have been investing abroad. Some 17 Turkish banks now have 47 subsidiaries in financial companies in 17 countries and have opened 72 banking branches or representative offices in 16 nations, mainly in the EU, the Balkans and the former Soviet Union, as of the beginning of 2005, according to the Banks Association of Turkey, whose figures also show that Turkey’s banking system grew 21% in 2005, with assets rising to $275.8bn from $227.9bn in the previous year.
Total bank loans rose to $113.3bn from $73.8bn in 2004 and deposits climbed to $186.4bn from $142.1bn, according to the Banking Regulation and Supervision Agency (BDDK), Turkey’s supreme banking authority.
With interest rates declining, Turkey’s 47 banks have been rearranging their assets from the financing of government debt to providing loans to consumers and businesses. Trading in government securities is no longer the main source of the banks’ income. Real interest rates on Treasury bills and government bonds have fallen from 30% in 1999 to less than 6% in March 2006 – still high by western standards.
“New Treasury bill issues offer slimmer pickings than Turkish lira-denominated loans, and consequently there has been a major shift from [government] securities to loans,” banking analysts Nergis Kasabali and Sadrettin Bagci at Ata Invest, a large brokerage firm, wrote in a report on Turkish banking.
The banks have placed emphasis on consumer banking, housing finance and lending to small and medium-sized companies, viewed as the only growth areas for banking in the coming decade.
Consumer loans in 2005 totalled $21.2bn, or 26.5% of all Turkish lira bank loans. Consumer loans increased 26.4-fold in just four years from only $800m in 2000, the BDDK reported.
Credit card usage is on the rise as income levels increase and spending habits change. The number of credit card users increased to nearly 30 million in 2005, more than doubling from 14 million in 2001, the Interbank Credit Card Center said. Credit card spending in 2005 reached $63.1bn, up from $15.2bn in 2000.
Turkey’s banks expanded automated teller machine (ATM) services to 14,823 locations by the end of 2005 from 4656 in 1995. The growth of point-of-sale (POS) terminals has been heady in the past decade. The number of terminals grew to 1.1 million in 2005 from 299,950 in 2000 and only 25,000 in 1995.
Mortgage rate drop
But competition has been especially fierce in housing loans, where the country’s larger banks have hurried to capture a greater market share by offering long-term housing loans at the expense of incurring maturity mismatches. Interest rates on 20-year housing loans have fallen to as low 11.88% a year as of March 2006, from 30% at the end of 2004. Even traditionally conservative banks, such as Akbank, have rushed to finance mortgages with equity and deposits.
“Banks are positioning themselves to reap the benefits of a declining interest rate environment, such that they are betting on maturity mismatches and financing housing loans of up to 20 years with their short-term deposits,” says Kazim Andac, a banking analyst with Finansinvest, a large brokerage house.
The watchdog Capital Markets Board says Turkey’s Grand National Assembly will pass legislation in May establishing a national housing finance system that is expected to revitalise the construction industry and property market, allow middle-income families to become homeowners, sustain economic growth and attract new foreign investment.
“The establishment of a mortgage system is expected to offer a major boost to the banking sector,” Messrs Kasabali and Bagci of Ata Invest said.
Once the mortgage system is legalised, banks will provide long-term mortgage loans to the prospective home buyers, covering up to 70% of the total cost of the home.
The banks will then sell the mortgages to a pool of new mortgage finance companies, similar to the US Fannie Maes, that is being established. These companies in turn will issue bonds, asset-backed securities and mortgage-covered bonds on the domestic and international markets to institutional investors, such as insurance companies and pension funds, to provide long-term funding.
House market boom
But falling inflation, lower interest rates and a booming economy have already energised the housing market. Turkey’s construction industry grew 21.5% in 2005 because of an abundance of government building contracts and vigorous growth in housing, according to the Turkish Statistics Organisation (TUIK).
Housing loans in 2005 stood at $9.2bn, or 43.3% of all consumer loans and 8% of overall bank loans, according to the BDDK. This was a huge increase over 2004 when housing loans totalled just $2bn, a mere 2.5% of all bank loans and less than 1% of the GNP. Some 196,523 individuals took out housing loans in 2005, up 340% over 2004, according to the state Title Deeds and Cadastral Office.
The Association of Real Estate Development Companies (GYODER) expects 600,000 new homes will be built in Turkey each year for a decade.
GYODER predicts that Turkey’s housing loan market could be worth as much as $60bn annually when the mortgage system is operating at full strength.
Foreign bank rush
The profits to be earned in consumer finance, loans to small businesses and the housing market have whetted the appetites of foreign banks, which have rushed to acquire shares in Turkish banks since the country opened membership talks last autumn with the EU. Six foreign banks have purchased stakes in Turkish banks since January 2005, spending $7.2bn.
Twenty fully or partially foreign-owned banks now operate commercial or investment banks in Turkey, and another 48 have representative offices. At least five other Turkish banks are hoping to conclude partnership deals with foreign banks in 2006 – Denizbank, Akbank, Alternatifbank, Oyakbank and Tekfenbank.
Prime minister Recep Tayyip Erdogan’s government is also planning to sell the big three state banks – TC Ziraat Bankasi, Halk Bankasi (Halkbank) and Vakiflar Bankasi (Vakifbank) – now that it has completed the privatisation of some of the country’s largest state enterprises. In an initial public offering of 21.89% of its shares last November, Vakifbank raised $1.27bn. Some 60% of the shares went to foreign institutional investors.
The top foreign transaction in the Turkish banking system in 2005 came in August when US General Electric Consumer Finance’s bought a 25.5% share of Türkiye Garanti Bankasi, Turkey’s fourth largest commercial bank, for $1.56bn from Dogus Holding, a local group.
The second biggest deal was when Koc Financial Services (KFS), a 50-50 joint venture between Koc Holding of Turkey and UniCredito of Italy, acquired a 57.4% of Yapi ve Kredi Bankasi from financially ailing Cukurova Holding for $1.5bn. Yapi ve Kredi Bankasi, Turkey’s fifth biggest bank, will be merged with Kocbank under Yapi ve Kredi Bankasi’s name, by the summer.
Belgium’s Fortisbank also bought a 89.3% share in Türkiye Dis Ticaret Bankasi (Disbank) from Dogan Holding of Istanbul for $1.05bn, and changed its name to Fortis Bank.
Greater variety
Analysts say the foreign influx into the banking system will strengthen Turkey’s finances.
“The new shareholders [of the banks] will not only improve the funding base and maturity mismatch, but also increase the product variety. However, the competitive environment will also undergo a major change with the new players in the market. This will widen the gap between large scale banks and the second tier banks,” according to the banking report by Kasabal and Bagci.
Others suggest the days of national banking in Turkey are numbered.
“National banking is losing its importance,” Erol Sabanci, chairman of Akbank, said in a recent interview with the newspaper Milliyet. “In eastern Europe, starting in 1996, extensive foreign investment entered the banking system. Foreign banks in these countries now control 76% of the assets and 71% of the capital of the banking systems. It won’t be surprising if Turkey faces the same situation.”
Other foreign banks have announced plans to grow in the country. HSBC says it will expand the number of its branches in Turkey to 350 from 159 and increase its staff from 4200 employees to 8000 by 2010. Meanwhile, Turkey’s top banks have said they will hire 29,000 new employees in 2006, to meet growth targets. TABLES: TURKISH BANKING SYSTEM 2001-2005 ($BN) and NUMBER OF BANKS IN THE SYSTEM
