Turkey’s economy grew 2.2 percent in 2012, and its sovereign rating rose to investment grade for the first time in 18 years. The Turkish economy grew by three, 4.5 and 4.4 percent respectively in the first, second and third quarters of 2013, making it the 17th-biggest economy in the world that year.
The banking sector is among the industries driving the Turkish economy. Lingering uncertainty was cleared away recently after the FED’s decision in mid-December to decrease asset purchases. The fact that the speed of asset purchases depends on the macroeconomic performance of the US suggests there will be increasing fluctuations in the coming years. This may slow the capital inflow to emerging economies.
Meanwhile, European economies continue to recover despite fragilities. If this recovery gains a healthy and sound momentum, Turkey will be positively impacted by foreign trade and fund inflows. On the other hand, efforts to pull the Japanese economy out of deflation may be perceived as a factor that could affect global capital flows.
[I]t is critical that emerging economies keep up with the recovery rate of the developed economies
Structural problems have begun to stand out more due to the cyclical slowdown experienced in emerging economies. At this juncture, it is critical that emerging economies keep up with the recovery rate of the developed economies. Otherwise, capital flow to emerging economies may lose momentum.
Based on the trends in the second half of 2013 in Turkey, it is possible to say that a general expectation has unfolded with regard to how 2014 will turn out: it will be a highly fluctuating year. The measures that have been taken by the regulatory authorities and the emerging macroeconomic trends may both be understood as signs of slower growth in the banking industry in 2014 compared to 2013.
Among the possible causes may be the actions of the regulatory authorities, rapid increase in costs and non-performing loans. But most of the actions that could be done in terms of regulatory measures have now already been done; therefore, no significant surprises are expected in 2014.
As a result of continuing uncertainties, a rising pressure may be expected in foreign and domestic funding costs in the banking industry. On the other hand, the gravity of the effect that increasing costs will have on economic activity could be crucial in terms of managing credit exposure. If the depreciation that the Turkish lira experienced in 2013 becomes permanent, a better analysis will have to be done to understand its impact on the balance sheets of industry players.
Another pressing issue to watch out for will be the impact of the depreciation of Turkish lira on the profitability and capital adequacy ratio of the banking industry in general.
We at Türkiye Finans project a modest GDP growth of 3.5 to four percent in 2014, due to both foreign and domestic risks and the measures taken by the economic administrators. In the current climate, there is a downward trend regarding the risks on growth. Nevertheless, if the factors that are considered risks do not have as much of an adverse effect on economic activities as feared, the growth may be close to historic averages.
Steady growth
Türkiye Finans improved its growth and profitability figures over the course of 2013. We started initial preparations to issue lease certificates in Turkish lira and US dollars, and successfully completed our first Sukuk issue.
Turkey’s economy
17th
Biggest economy in the world, 2013
4.4%
Growth in 3rd quarter, 2013
Through Sukuk issuances and syndicated murabaha facilities, we continued to support small- and medium-sized enterprises (SMEs), the building blocks of our economy, and introduced numerous innovative products to the industry. These included Finansör Card and Siftah Card, which were firsts in participation banking.
In addition to entering into agreements with chambers of commerce and industry, we also sped up efforts to improve customer satisfaction. Our accomplishment was acknowledged once again with the significant awards we have won. Türkiye Finans placed emphasis on technology investments in 2013, as was the case in previous years. The mobile banking application we developed was chosen in a survey as the most liked in its field.
As of September 2013, the asset size of the bank climbed to TRY 23.3bn – a 32 percent growth year-on-year. Attaining high growth rates without compromising profitability is the strategy we are implementing. The bank’s net profit for the period was TRY 236.8m.
As of the end of 2012, our loans total had reached TRY 17.1bn, while the size of the non-cash loan portfolio grew to TRY 7.8bn. There was also a 21 percent improvement in deposits, amounting to TRY 13.8bn, and the number of branches increased to 250.
Türkiye Finans has a five-year strategy in place: we are aiming to reach an asset size of over TRY 40bn by the end of 2016. Our priority is to grow in the SME and retail segments. We are also planning a similar international Sukuk issue in 2014. We issued Sukuk in the amount of TRY 100m for the domestic market in January 2014. We also funded the first ever corporate Sukuk issuance in participation banking in the country.
Participation banking
Türkiye Finans believes there is significant potential in Turkey’s young population, development of innovative products and a relatively low penetration rate compared to other countries. Thus, we think that growth dynamics will develop even more in the coming term. Our opinion is that new players in the industry are going to bring fresh momentum to participation banking.
Türkiye Finans believes there is significant
potential in Turkey’s
young population
We see continued profitability as well as sound return on equity in comparison to similar countries. There is a critical relationship between the market share of personal deposits and the share of banks with more branches. This fact makes it clear that increasing the number of branches is crucial.
Furthermore, we also see banks opting for the bond issuance route in order to obtain non-deposit funds – a trend that is going to continue, in our opinion. We project that efforts to provide funding through lease certificate issuances are going to swell compared to previous years.
We can assume that monetary policy, which will be operated according to a medium-term programme cyclically, is going to remain a consequential parameter for the banking sector.
In our opinion, the project to turn Istanbul into a financial centre will help put Turkey among the top-10 economies in the world by 2023. We feel that Istanbul’s geographical location will be a major contributor in helping the country become a global financial centre. Currently, Turkey is one of the biggest economies in the Middle East, Eastern Europe and Central Asia regions. Thus, it has the potential to become the financial centre of the region.
