banking sector and foreign banks in turkey ekrem keskin december 2008

Banking Sector and Foreign Banks

in Turkey

Ekrem Keskin

December 2008

Banking sector and foreign banks in Turkey, December 08

2

Content

Change in economic environment and impact on the banking sector

Selected figures; comparison of sector and foreign-owned banks

Recent issues


3

Change in economic environment


4

Savings gap widened, mainly due to the private sector as the public sector improved its balance

Savings balance (As % of GNP)

-15

-10

-5

0

5

10

15

02 03 04 05 06 07 exp 08 prg

Total State sector Private sector


5

In private sector, savings rate declined rapidly as fixed investment rate accelerated due to investments in new technology and expanding capacity

Private sector; savings and investment rates (as % GNP)

8

10

12

14

16

18

20

22

24

26

02 03 04 05 06 07 08 exp

Total Private sector


6

The share of external borrowing in fixed capital investment

Private sector: external borrowing/fixed capital investment (%)

0

5

10

15

20

25

02 03 04 05 06 07 08


7

Jump in net capital inflow from an annual averege of USD 3 billion in the 90’s to USD 50 billion in 2008 September

Net capital flows (USD billion)

-10

0

10

20

30

40

50

60

02 03 04 05 06 07 08 Spt

Non-financials FDI Portfolio investments Financials


8

Private sector increased its borrowing from external markets

External debt(USD billion)

Public CB Private Financial Non-financialSector Sector sector sector

02 64.534 21.999 43.165 10.179 33.59608 June 77.650 16.204 190.549 65.860 124.689


9

High growth performance: Stable and strong growth, over the long term average of 4.3% between 2002 and 2007 before a steady slowdown in 2008.

GDP growth (at 1988 prices, annual % chg)

0

1

2

3

4

5

6

7

8

9

10

02 03 04 05 06 07 08


10

Rapid disinflation: Inflation has declined to the historically lowest level during the free market economy, although it’s decending trend halted recently and has reversed slightly.

Inflation (yoy % chg) and CB policy rate (%)

05

10152025303540455055606570

02 03 04 05 06 07 08

Policy rate Inflation


11

Substantial fiscal adjustment: One of the main reasons behind the positive outcomes was the tight fiscal policy which led to a substantial decline in PSBR and budget deficit

Public sector balance and budget balance (as % of GDP)

-15

-13

-11

-9

-7

-5

-3

-1

1

3

02 03 04 05 06 07 exp 08 prg

Public sector balance Budget balance


12

Reduced public sector debt...

Public sector debt(As % of GDP)

0

10

20

30

40

50

60

70

02 03 04 05 06 07 08 Spt

Domestic External


13

As the public sector borrowed less, loans to private sector soared

PSBR and loans (As % of GDP)

-2

3

8

13

18

99 00 01 02 03 04 05 06 07 08Spt

10

15

20

25

30

35

40

PSBR Loans (right)


14

Stronger shareholders’ capital and free capital enabled the banking sector to change its risk structure...

Shareholders' equity and free capital (USD billion)

0

10

20

30

40

50

60

70

02 07 08 Spt

Shareholders' equity Free capital


15

...from the public to private sector risks

0

10

20

30

40

50Risk weighted with %0

Risk weighted with %20



'02

'08 Spt


16

Capital adequacy ratio remained rather above the level of BRSA’s regulation

Capital adequacy (%)

15

18

21

24

27

30

33

02 03 04 05 06 07 08 Spt


17

Well-diversified loan portfolio

Breakdown of total loans (%)

02 08 Spt

Corporate 87 67 SMEs na 27Consumer+credit cards 13 33 Consumer 4 24 Housing 1 11 Automobile 1 2 Others 2 11Credit cards 8 9Total 100 100


18

Higher ROE but is sufficient enough?

The gap between REO and return on G-securities

-60

-50

-40

-30

-20

-10

0

10

02 03 04 05 06 07 08 Spt


19

Higher risks, lower ROE

Risk weighted assets/total risky assets and ROE (%)

08 Sept

07

060504

0302

40

45

50

55

60

65

70

10 12 14 16 18 20

Ris

ks

REO

Selected figures; comparison of the sector and

foreign-owned banks


21

Ownership structure(September 08, % share in total) Free Shareholders' Assets Loans

float equity

Deposit banks 21 87 97 97State-owned banks 15 21 29 24Private banks 30 40 43 43Foreign banks* 1 26 25 30*weighted share in non-public shares


22

Loans and financing(September 08, %) Sector Foreign

banks*

Loans/assets 53 65Loans/deposits 86 120Loans+securities portfolio/deposits 131 148External borrowing/loans 25 32Consumer loans/total loans 33 38*Majority shares owned by foreign investors


23

NPLSector Foreign

banks(September, %)NPL (before provisions)/loans 3,2 3,3NPL (after)/loans 0,6 0,7Provisions for NPL 82,5 77,5(November, %)NPL/Consumer loans+credit cards 3,5 4,4 NPL/Consumer loans 3,1 2,6 NPL/Credit cards 6,9 8,6


24

TL-Fx structure(%) Sector Foreign

banks*

TL assets/total assets 72 78TL liabilities/total liabilities 67 61TL loans/total loans 74 82TL deposits/total deposits 67 59*Majority shares owned by foreign investors


25

Breakdown of risk weighted items (%)(September 08) Sector Foreign

banks

Total of risk weighted assets 100 100 0 wighted items 21 10 20 wighted items 6 6 50 wighted items 11 15 100 wighted items 50 56 Value at market risk 3 4 Value at operational risk 8 9


26

Capital adequacy and profitability(September 08, %) Sector Foreign

banks*

Shareholders equity/risk w. assets 17,5 15,0Roe 17,0 12,0Roa 2,1 1,6*Majority shares owned by foreign investors


27

Main issues in economy:

• Uncertainties in international environment• Reliance on external borrowing• Difficulties of financing of balance of payments • Pressures on fx liquidity• Contraction in economic activity• Rising costs of financing of private sector• High degree of currency substitutions• Ownership changes in banks in Europe


28

• Maturity structure of balance sheet

up to 3 mths up to 6 mths

• Loans 29% 55%• Deposits 90% 94%

• Lack of information of recent position of clients• Slowdown in loans• Rising capital or limiting risks?• Prospective level of capital adequacy

• NPLs

• Interest rate risks

• Earning pressures to feed capital


29

Thank you.


30

Consumers' position(As % of GDP)

2002 2008 Spt

Saving deposits 27 26G-securities 6 2Total 33 28

Consumer loans 2 12

Consumer loans/total 6 42


31

Banking sector

Daily selected figures 03.10.2008 02.12.2008 Chg

02.12/03.10

TL loans TL million 274.479 265.540 -8.939

TL deposits TL million 285.012 301.466 16.454

Repos TL million 44.810 42.326 -2.484

TL deposits+repos TL million 329.822 343.792 13.970

Fx loans USD million 71.268 69.627 -1.641

Fx deposits USD million 109.075 98.183 -10.892

Fund borrowed from abroad USD million 55.640 54.653 -986

Fx deposits+funds borrowed from abroad USD million 164.715 152.837 -11.878

Non-residents holdings of G-securities TL million 32.634 26.847 -5.787

Non-residents holdings of G-securities USD million 25.080 16.842 -8.239

Securities portfoli of banking sector TL million 180.012 194.603 14.591


32

Ratios (%)

03.10.2008 02.12.2008

TL loans/TL deposits 96 88

TL loans/TL deposits+repos 83 77

Fx loans/Fx deposits 65 71

Fx loans/Fx deposits+fund borrowed from abroad 43 46

Total loans/total deposits 87 83

Total loans/total deposits+repos+funds borrowed 78 75

S.portfolio+ t. loans/t deposits+repos+fund borrowed 101 98

Source: BRSA


33

Corporates' monetary position with banks in TurkeyTL Fx

billion TL billion USD

Assets* 109 33Deposits 58 30Securities 51 3

Liabilities* 118 80Loans form Turkey 118 80

Assets-liabilities -9 -47

According to the CB, fx position is about USD 80 billion* Including offshore branches


34

Maturity structure (Cumulative, %)

Demand up to 1 mths up to 3 mths up to 6 mths over 6 mths

Deposits 15 43 90 94 100Loans 13 20 29 55 100


35

External financing requiremens and available sources(Billion USD)

2009

Current account deficit 20-30Debt repaymets 84 M- long-term 36 Short-term 48Financing needs 104-114Financing FDI 10 Portfolio ? Private sector 60 Public sector ?Change in reserves 15

banking sector and foreign banks in turkey ekrem keskin december 2008

Documents

foreign banks

capacitybanking sector

balancebanking sector

septemberbanking sector

lower roe banking sector

budget deficitbanking

reduced public sector

turkey ekrem keskindecember