The Turkish central bank

Government efforts this year to ease Turkey’s deepest recession since World War II—the econ­omy shrank at an annual pace of 7 percent in the second quarter of 2009 after contracting a record 14.3 percent in the previous three months—also helped shore up lenders. Last March, Prime Min­ister Recep Tayyip Erdogan announced tax cuts on cars and home appliances to encourage spending. At the end of September, the govern­ment revoked the reductions, citing optimism for a recovery.

YOU CAN use the World Economic Statistics (ECST) function to track Turkey’s economy. Type ECST <Go>, press <Page Fwd> twice and click on Turkey to access a menu of indicators such as GDP, consumer confidence and industrial production. Type FXIP TRY <Go> for news, spot rates and functions related to the Turkish lira and economy. Type MMR TU <Go> for Turkish money market rates.

 

The Turkish central bank

The Turkish central bank lowered benchmark interest rates in a yearlong series of cuts to a re­cord 6.75 percent as of mid-October from 16.75 percent a year earlier, the biggest drop among the Group of Twenty nations. The bank said it would probably continue reducing rates after an Oct. 15 meeting in Ankara, the capital.

The central bank also lowered lenders’ lira reserve requirements by 1 percentage point to 5 percent in October, to make credit more easily available. The reduction in the proportion of li­abilities that lenders must deposit with the cen­tral bank will free up about 3.3 billion liras that could be used for loans to corporations, offi­cials said.

 

A joint effort between the government and lenders announced in October aims to help small businesses weather the economic down­turn by establishing the 240 million lira Credit Guarantee Fund, which will provide capital and backing for corporate loans.

 

“We need to protect our companies,” Deputy Prime Minister Ali Babacan said when the pro­gram was announced on Oct. 13. The Treasury is backing the fund with an additional 1 billion liras, which can be allocated according to need. Rates charged to companies borrowing under the fund’s guarantee will be below market lev­els, Babacan said.

 

“There’s a capital pool that is available and accessible for corporate and consumer credit,” Garanti Securities’ Kaya says.

The Turkish central bank

Despite their increased financial strength, Turkish banks are still vulnerable to fallout from the economic contraction and face a rise in non­performing loans and credit card debt. Bad loans climbed to 4.9 percent of 368.2 million liras out­standing as of the end of June from 3.7 percent of the total six months earlier. Nonperforming credit card debt reached a record 11 percent of 34.3 bil­lion liras borrowed as of Sept. 11.

 

“The banking sector will have its real test in 2010,” says Tevfik Bilgin, chairman of the BRSA. “Therefore, it would be right to build up capital with gains and hold reserve funds instead of pay­ing them out to shareholders.”

Bolstering Turkish Banks

Regulations put in place after the country’s 2001 banking crisis and policies announced this year are helping lenders rebound from the latest financial meltdown. By EMRE PEKER and ALI BERAT MERIC TURKISH BANK shares and profits tum­bled in 2008, just like those of other financial firms worldwide during  global credit crunch and recession.
Now, the banks are bouncing back more quickly than their emerging-market counterparts. That’s thanks to regulations put in place after the coun­try’s 2001 banking crisis that bolstered the banks’ financial strength—and measures announced this year to help spur economic growth.Bolstering Turkish Banks

Earnings at Turkish banks surged 36 percent to 14.2 billion liras ($9.75 billion) in the first eight months of 2009 as lending increased. The rise in profits fueled a 112 percent gain in the MSCI Turkey/Financials Index this year through Oct. 12, outpacing the 74 percent increase in the benchmark MSCI Emerging Markets/ Financials Index. Turkiye Valdflar Bankasi TAO, a state-run bank, and Istanbul-based Asya Katilim Bankasi AS led gainers as of mid-October, with each rising more than 175 percent since Jan. 1. Type MXTROFN <Index> COMP YTD MXEFOFN <Go> to compare returns on the MSCI Turkey/ Financials Index with the broader gauge of emerging-market financial stocks. Type MRR <Go> to view returns of individual members of the index of Turkish financials.

 

Currency risk contributed to lender failures in 1999 and precipitated the Turkish banking system’s collapse in 2001, when a devaluation caused record losses for institutions that had lent money in liras while funding the credit in U.S. dollars. Turkey spent more than $50 billion to compensate investors and to cover losses at gov­ernment lenders in the past decade under a series of In­ternational Mone­tary Fund programs to strengthen its fi­nancial system. Learn more how you can survive your debts by visiting http://green-touch.org/payday-loan-consolidation/

 

“The fact that this painful lesson was learned 10 years ago has effectively safe­guarded the banking system in the most recent crisis,” says Paul Formanko, head of bank re­search for central and Eastern Europe, the Mid­dle East and Africa at JPMorgan Chase & Co. in London.

FOLLOWING THE crisis, Turkey’s Banking Regula­tion and Supervision Agency limited banks’ so-called open position to 20 percent of equity in 2001. The open position is the gap between for­eign exchange liabilities and assets. It also in­creased the minimum capital adequacy ratio for banks to 12 percent from 8 percent in 2006.

 

The result is that banks were in better shape in 2008. “The banking system had more than enough capital to absorb shocks,” says Mahmut Kaya, head of research and institutional sales at Garanti Securities, a unit of the second-biggest domestic bank, Turkiye Garanti Bankasi AS, in Istanbul. Before the latest turmoil, banks’ mini­mum capital adequacy ratio was higher than required, at about 18.5 percent, Kaya says. At the end of August, the ratio was 19.9 percent, according to regulators.