‘We are growing in excess of the sector’s growth rate’: Turkiye Finans on exceeding industry expectations

Transcript

The Turkish banking sector has been plagued by instability since the global financial crisis, but one institution that has stayed on top is Turkiye Finans. World Finance speaks to its CEO, Derya Gürerk, to find out how the bank has prospered in difficult times, and what impact regulation has had on its performance.

World Finance: Now Derya, when we spoke last year you told us how Turkiye Finans was exceeding industry expectations, in terms of talent management, network distribution and customer footing – how have the last 12 months treated you?

Derya Gürerk: We replicated our previous year’s performance. Again we are growing in excess of the sector’s growth rate – in terms of branch network expansion, human resources, balance sheet growth, as well as profit growth.

To put them in numbers: profits grew over 16 percent last year, asset size grew 43 percent and non-portfolio size grew 40 percent

To put them in numbers: profits grew over 16 percent last year, asset size grew 43 percent and non-portfolio size grew 40 percent. Also on the deposits side we grew 32 percent, and in the first quarter of 2014 our profit grew 15 percent, versus the Turkish banking sector’s profit reduction by 14 percent. So we are heading in the totally opposite direction – and so far everything is very good for us.

World Finance: So you grew 15 percent compared with the banking sector in Turkey, over all, decreasing by 14 percent. That’s an incredible result – can you tell me a bit more about that?

Derya Gürerk: It is coming from the business model mostly. We are a true SME bank, as we call ourselves. In the Turkish banking sector our long portfolio of market share is about 1.7 percent. Our market share in SME business is over three percent; it is our core business, it is where we have the muscles and it’s where we punch above our weight.

SME business is a long-term relationship driven business. It is a long term financing installment-based repayment – so our long-term investments on SME business is basically paying of these days – this is how we differentiate ourselves from the market. But all the Turkish banks are now inventing SME business; so it will be fun.

World Finance: Let’s talk in more detail about the regulations that are impacting you then – what changes have been made and are they negatively impacting on banking in Turkey – on customer experience?

Derya Gürerk: The reason why the banking sector lost momentum in terms of profit, is because of the over-regulation, or heavy regulation, on consumer financing recently. That caused the banks to lose a lot of momentum, margins and spreads on retail banking.

Also the Turkish banking system lost a lot of momentum because of the decline in interest rates firstly – then the suddenly increasing interest rates at the beginning of the year on the securities portfolio. So we haven’t been active on those fields.

For that reason, we haven’t been impacted as the others have. The only glitches are the pricing – when you have the negative volatility then you pay an extra price – this is what we are concentrating on at the moment.

World Finance: What can be done to ease out that volatility, if anything?

Derya Gürerk: The government has been trying to motivate savings, as well as also trying to curb the spending of the individual – so that they are guided to saving rather than spending.

We have been coming from a very high inflation environment. I remember the per annum inflation was about 90 percent; the average was over 60 percent. From that extreme, in less than 10 years time, we went to the other extreme, of a low interest rate environment.

And these two extremes are giving this one same result, which is spending. So this is our dilemma.

World Finance: Would you like to see any changes in the government’s plans?

Derya Gürerk: No. The rate cut of the central bank of course gave a good and positive boost to the Turkish banking bottom line, suddenly and immediately.

Also towards the end of the year, the Turkish banking sector will be able to recover some of the lost momentum on that profit generation. And for that reason, we saw around 20 to 30 percent rally on the stock exchange stocks.

The rate cut of the central bank of course gave a good and positive boost to the Turkish banking bottom line, suddenly and immediately

World Finance: I want to touch on quite a milestone for Turkiye Finans earlier this year – a $500m sukuk issuance in May – tell me about that.

Derya Gürerk: We received an incredible amount of interest and attention; the demand was over three times the demand on our insurance.

And for the first time there was tangible interest from Asia; 15 percent has been allocated to Asian investors. We are in the process of issuing a Malaysian ringgit sukuk and it will be the first in Turkey – tapping this source in Malaysia.

World Finance: Do you think that the growing international acceptance of Islamic finance is really helping Turkiye Finans and Turkey as an economy?

Derya Gürerk: That’s true. Islamic banking in Turkey has been growing steadily; we stand for 5.5 percent of the banking sector. When you consider it was only less then two percent 10 years ago, we have basically been growing at a speed of twice that of the banking sector’s growth.

And of course Turkey is capital short and savings short; for that reason we are depending on foreigners’ savings to fuel the growth. So your savings with your banks are basically fuelling our growth – so thank you very much – because 15 percent of our sukuk has been financed by investors in London.

World Finance: Derya, thank you.

Derya Gürerk: Thank you.