With 8.5% gross domestic product (GDP) growth in 2011, Turkey boasts the fastest growing economy in Europe and after China, the second fastest in the world. At the same time, its sovereign debt-to-GDP ratio is only 40%, and private sector borrowing is just 19% of GDP, making it one of the world’s least leveraged emerging markets. Couple that with a population of 74 million, half of which is below the age of 30, and a banking sector which, with an average capacity adequacy ratio of 16.5%, is one of the healthiest in the world, and clearly Turkey is a banking market ripe for growth.
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Indeed most forecasts predict that even despite continuing turmoil in the eurozone, Turkey will still manage GDP growth of about 4% in 2012. Loan growth is predicted to hover between 15% and 18% and predictions for deposits only slightly lower.
Little surprise to learn then that rapid organic domestic growth is high on the agenda, with Turkey’s top retail banks launching aggressive campaigns to expand their branch networks and increase the reach of their already highly developed electronic banking facilities. So far in 2012, Vakifbank has announced that it is intending to hit the 1000-branch mark, up from its current 684, while Akbank and Halk Bank have announced plans to open 70 and 60 new branches, respectively, by the end of the year, which will result in as many as 1000 new staff for each of the two banks.
“Underbanked, under-penetrated regions still exist and any new branch we open is generally profitable within three months,” says Süleyman Aslan, CEO of Halk Bank. He adds that the stabilisation of the high-inflation and high-interest rates that blighted the Turkish economy for decades is behind the current boom.
“This structural change in the economy has paved the way for new consumer-side activities and precipitated consumer loan growth and mortgage loan growth,” he says.
Rationalise and expand
This sentiment is echoed by Akbank CEO Hakan Binbasgil, who adds that a fast-growing middle class distinguishes Turkey from many emerging markets. He points out that with a capital adequacy ratio of 16.8% and a leverage of 7.7 times – one of the lowest in Turkey – Akbank has a lot of ammunition for growth.
Planned branch expansion is not confined to Turkey’s biggest most aggressive banks. As widely expected, 2011’s merger of BNP Paribas’ Turkish assets, Turk Ekonomi Bank (TEB) and Fortis Bank Turkey was followed by extensive rationalisation. “When we began the merger we had 607 branches of which we successfully merged 100 in 2011,” says TEB’s CEO Varol Civil.
Having adjacent branches was inefficient and risked promoting competition between branches instead of with competitors. But after slimming down to 509 branches as of April 2012, TEB is again expanding, this time on a geographical basis. “This year we plan to open between 10 and 15 new branches but over the mid-term – maybe two to three years – our target is to have 650 branches in total,” says Mr Civil.
New delivery channels
Rapid branch expansion on the back of growing consumer demand for banking services makes good commercial sense. But it is also immediately noticeable that this growth is occurring at a time when unprecedented technological development is forcing a sea of change in the way that banks interact with customers.
“Two-thirds of our transactions happen outside the branch environment, about one-third of our customers we never see at all, 90% of our money transfers are via non-branch channels, and about 90% of cash withdrawals and 70% of deposits are being made via ATMs,” says Mr Binbasgil at Akbank, pointing out that Turkey’s young population is extremely tech-savvy.
Turkey is one of the world’s heaviest users of social media, with an estimated 30 million Facebook accounts, and Akbank brands have 1 million Facebook followers. Mr Binbasgil says that Akbank’s policy of maintaining its position of “sustainable leadership” of the Turkish banking sector includes a commitment to new technology.
“We use a lot of high-tech customer relationship management systems and continue to be a state-of-the-art bank in terms of mobility. That is why [in 2012], for example, we are investing about $120m in new technology,” he says.
Despite this attention to technology and a technophile population, Mr Binbasgil sees no contradiction in expanding Akbank’s physical branch network. He points out that Turkey is “a huge market”, with branch penetration that is still only about one-third of the EU average.
