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Team of the monthFebruary 11 2011

Akbank builds firm base to expand in Turkey and beyond

Turkey was one of the few countries in Europe to enjoy a 'good' crisis, and at the forefront of this robust performance was Akbank. Brian Caplen talks to its chairwoman Suzan Sabanci Dinçer about Akbank's plans to consolidate a strong position in its home market while exploiting its relationship with Citi to push forward overseas expansion
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“A star is born” is how Akbank chairwoman Suzan Sabanci Dinçer describes Turkey’s resurgence following the recent international crisis. Having suffered a banking meltdown in 2001-02, which cost about one-third of the country’s gross domestic product (GDP), Turkey’s government overhauled its regulations and put the industry on a conservative path.

The fundamentals of the country’s economy are now coming together - growth, inflation, the debt-to-GDP ratio and budget deficit ratio - to create a virtuous circle whereby Turkey could become investment grade before the end of 2011.

“Because of the [2001] crisis we have very strict banking regulation,” says Ms Sabanci Dinçer, who is quick to point out that Akbank was never in difficulties at that time. “It cost almost one-third of [Turkey’s] GDP - $45bn out of a GDP of $150bn - and 81 banks were reduced to 45 banks. We now have a very prudent banking regulation and supervision regime, which has led to a high capital adequacy ratio of about 20%, well above the regulatory limit of 8% and targeted ratio of 12%.”

Impressive figures

“In the wider economy everything else is falling into place. Inflation was 6.4% at the end of 2010 and is forecast to be 6% at the end of 2011 - this compares to an annual average of 75% in the 1990s,” says Ms Sabanci Dinçer.

“Growth in 2010 was 8% and likely to be 5% this year, giving us the highest growth in eastern Europe and making us a ‘BRIC-like’ country in Europe.

“Whereas in the 1990s foreign direct investment was averaging about $1bn a year, we are now averaging $15bn a year, with $20bn coming in in 2007 and almost $7bn in 2009, during the worst of the international crisis.”

Indeed, Turkey’s current account deficit is the only weak spot. Ms Sabanci Dinçer adds: “Turkey is a young country where the average age of the country is only 29 and we are not in debt – the credit-to-GDP ratio is 40% and consumer loans-to-GDP ratio, including credit cards, is only 15%. So there is a strong growth story.”

Standing out

Ms Sabanci Dinçer believes that Turkey’s impressive economic performance during the financial crisis of 2008/09 made the country stand out on the international stage. The consumer finance, energy and tourism sectors are where Turkey is particularly strong, and with this in mind Akbank’s strategy is to grow domestically by targeting the consumer finance, project finance and the small and medium-sized enterprise segments.

Overseas, Akbank wants to make use of Turkey’s changing trade patterns and follow compatriot companies into countries in Asia, the Middle East and Africa. Rather than buying banks or establishing new banks in these countries, the aim is to use its relationship with Citibank (which holds 20% of Akbank) as well as forging strategic alliances with local banks.

Transparent banking

Turkish banking is traditionally run. As well as high capital adequacy, system leverage is seven times (Akbank’s ratio is 6.7) and loan-to-deposit ratios are typically 75% to 80%. “In Turkey the banking system is very easy to assess,” says Ms Sabanci Dinçer. “Our balance sheets are very clear and our business is fundamentally collecting deposits and making loans.”

Akbank has a very strong brand in Turkey, with 912 branches. Of the 340 companies quoted on the Istanbul Stock Exchange, Akbank has, for the past 20 years, been in the top three nearly every year for both market capitalisation and recording the highest profits. “We are not into fashionable products, we are into sustainable performance,” says Ms Sabanci Dinçer. “Akbank is one of the backbones of the country.”

Saturation point?

Ms Sabanci Dinçer believes that with 25% of Turkey’s banking assets owned by foreign players there is little scope for an increase in the number of overseas players in the country, unless the three major state-owned banks were to be privatised. She adds that the tie-up with Citi allows Akbank to learn from Citi’s experiences in other high-growth emerging markets.

But this is not to say that Turkish banks are in any way backward in terms of technology. With a young population to serve, they have embraced mobile and internet banking. Ms Sabanci Dinçer recalls how Akbank’s introduction of loan approval processes by mobile phone boosted the business: “Some people were shy about going into a branch and getting rejected for a loan so this seemed a good solution. As long as they can produce their documents, they know that we will approve the loan.”

Akbank’s board is actively involved in the day-to-day business of the bank, focusing on risk management and asset quality, having a bonus system that does not distort performance and on retaining customers in a market where competition is beginning to compress margins. On this last point, it helps that in Turkey “banks are still popular - although we do get criticised for making too much money”. 

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