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Reforms keep crisis at bay in Turkey

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Less than 10 years after one of the worst financial crises in Turkey's history - a crisis during which more than 20 banks were acquired by the state - Turkish banks appear to be weathering the international financial storm with remarkable resilience. Despite the global banking crisis, annual inflation of more than 10% and a 30% drop in the value of the Turkish lira against the US dollar, not one of Turkey's 11 largest banks made a loss in this year's Top 1000 ranking.

Although Turkish banks generally slipped a few places in this year's ranking by Tier 1 capital, this is largely due to the weaker lira rather than a deterioration in their capital. And although average pre-tax profits for Turkish banks in the Top 1000 fell 22.6% in US dollar terms, in lira terms it was a more modest drop of 5.9%.

Despite this fall in pre-tax profits, Turkish bank profitability remains healthy. The country's five largest banks made an average return on Tier 1 capital of 22.28% in 2008 and all but one of the country's 11 largest banks made a double-digit return on capital. Meanwhile, TC Ziraat Bankasi, the country's second largest bank by assets, and Türkiye Halk Bankasi, the country's sixth largest bank, made returns on capital of 34.53% and 49.11%, respectively.

One reason Turkish banks have been less affected by the crisis is that lending growth in the past five years has been more measured than in many of the more developed markets. Turkish bankers say the regulatory reforms that followed the 2000/01 crisis, although unwelcome at the time, have helped to limit bank exposure to the recent financial crisis.

Turkish banks have shown few signs that the crisis is affecting their growth. Average Tier 1 capital and total assets of the country's five largest banks have both risen consistently for the past five years. Turkish banks also remain highly capitalised compared with most countries: the average ratio of Tier 1 capital to total assets for Turkish banks in the Top 1000 ranking is 11.5% compared with the Top 1000 world average of 8%.

In US dollar terms, Turkish bank assets rose by an average of 9.74% in 2008, while in lira terms the growth was a more striking 33.85%. Although the size of Turkish banks' balance sheets is rising, they are still able to finance lending growth through their large deposit bases.

The average loan-to-deposit ratio for Turkish banks in the Top 1000 is a healthy 86.68%, compared with the EU average of 121.02%. Because Turkish banks are able to finance lending growth from their deep deposit bases, unlike many western European banks, they were not forced to seek wholesale or government funding at the peak of the crisis and have so far remained largely unscathed.

Turkish Banks\' Asset Growth (Tl M) 2004-08

Turkish Banks' Asset Growth (Tl M) 2004-08

Turkish Banks\' Pre-Tax Profits (Tl M) 2004-08

Turkish Banks' Pre-Tax Profits (Tl M) 2004-08

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