Turkey: Recent Developments
and Future Prospects
ISBANK
Economic Research Division January 2019
Macroeconomic Outlook
Strong Economic Growth Cycle
GDP of 851 bn USD (2017), 10.6k USD (2017) per capita
Average GDP growth rate of 5.5% between 2005-2017
17th largest economy in the world & 6th largest economy amongst the EU countries
More than 9 mn job creation since 2005
Prudent fiscal policy since 2002
3
Gross Domestic Product
Source: Datastream, Turkstat
50
0
54
8
67
7
77
7
64
7
77
2 83
2
87
1 9
50
93
5
86
2
86
3
85
1
2005 2007 2009 2011 2013 2015 2017
GDP (billion USD)
7,3
04
7,9
06
9,6
56
10
,93
1
8,9
80
10
,56
0
11
,20
5
11
,58
8
12
,48
0
12
,11
2
11
,01
9
10
,88
3
10
,59
7
2005 2007 2009 2011 2013 2015 2017
Per capita GDP (USD)
Turkey’s GDP came in at 851 billion USD in 2017.
4
Growth was largely driven by net export in Q3.
(*) Latest figure as of 2018 Q3
Source: Datastream, Turkstat
7.1
5.0
0.9
-4.7
8.5
11
.1
4.8
8.5
5.2
6.1
3.2
7.4
4.5
2006 2008 2010 2012 2014 2016 2018
Real GDP Growth* (%)
-6
-4
-2
0
2
4
6
8
10
12
2014 2015 2016 2017 2018
Contributions to Growth* (2009=100 chain linked volume index % points)
Stock Change Net ExportsInvestment ConsumptionGDP
Economic Growth
5
Leading Indicators
The slowdown in economic activity…
6
-6.1
-10
-5
0
5
10
15
Q42011
Q42012
Q42013
Q42014
Q42015
Q42016
Q42017
Q42018*
Calendar Adjusted Industrial Production
(yoy, % change)
50
60
70
80
90
100
110
120
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
Confidence Indices
Real sector confidence index
Economic confidence index
Consumer confidence index
(*) As of October-November.
Source: Turkstat, Datastream
More than 9 million new jobs were created since 2005.
Labor Market
7
9.7
8.9 9.2
12.0 11.9
10.0
8.5 8.8 9.1
10.3 10.2
12.0
9.9
11.5
45 45 44 45 47 47 47 49 49
51 52 52 53 54
2005 2007 2009 2011 2013 2015 2017
Labor Market Indicators* (%)
Unemployment
Labor Participation Rate
20 20 20 20
21 23 23
24 25 26 27
27 29 29
2005 2007 2009 2011 2013 2015 2017
Employment* (millions)
(*) Seasonally adjusted figures. Latest figure as of October 2018.
Source: Turkstat, Datastream
Fiscal discipline has been the main pillar of economic policy.
1.9
1.0 1.1
1.0 1.1
1.5
1.9
2012 2013 2014 2015 2016 2017 2018F*
Budget Deficit (% GDP)
Maastricht criterion: 3%
32.6 31.3
28.6 27.5 28.1 28.2
31.1
2012 2013 2014 2015 2016 2017 2018F*
General Government Debt Stock (% GDP)
Maastricht criterion: 60%
Fiscal Discipline
8
(*) New Economic Program forecasts
Source: Turkstat, Ministry of Treasury and Finance
Export volume reached all-time highs.
2.6
3.6
3.7
3.9
4.3
5.2
5.4
6.7
9.4
15.9
Minerals and fuels
Plastic and articles
Non knitted and crochetedgoods
Articles of iron and steel
Precious stones
Electrical machinery andequipment
Knitted and crocheted goods
Iron and steel
Boilers and machineries
Motor vehicles
Exports* (% of total)
Exports
9
73
86
10
7
13
2
10
2 11
4
13
5
15
2
15
2
15
8
14
4
14
3 1
57
16
8
2005 2007 2009 2011 2013 2015 2017
Exports* (billion USD)
(*) 12-month cumulative figures as of November 2018
Source: Turkstat, Datastream
Turkey has been successful in diversifying export markets.
Top 10 Export Markets
2005 % of
total
1. Germany
2. UK
3. Italy
4. US
5. France
6. Spain
7. Iraq
8. Netherlands
9. Russia
10.Romania
12.9
8.1
7.6
6.7
5.2
4.1
3.7
3.4
3.2
2.4
The share of first 10 57.3
2018* % of
total
1. Germany
2. UK
3. Italy
4. Iraq
5. USA
6. Spain
7. France
8. Netherlands
9. Israel
10.Belgium
9.7
6.6
5.7
5.0
4.9
4.6
4.4
2.8
2.3
2.3
The share of first 10 48.3
Exports
56.5
50.0
13.9
17.7
2005 2007 2009 2011 2013 2015 2017
Exports* (% of total)
EU
Near and Middle East
10
(*) 12-month cumulative figures as of November 2018
Source: Datastream, Turkstat
Import volume became 230 billion USD.
1.9
2.1
2.6
5.7
6.0
6.4
7.6
8.2
11.6
18.7
Pharmaceutical products
Optical products
Organic chemicals
Plastic and articles
Precious Stones
Motor Vehicles
Electrical machinery andequipment
Iron and steel
Boilers and machineries
Minerals and Fuels
Imports* (% of total)
11
7 1
40
17
0
20
2
14
1
18
6
24
1
23
7
25
2
24
2
20
7
19
9
23
4
23
0
2005 2007 2009 2011 2013 2015 2017
Imports* (billion USD)
Imports
11
(*) 12-month cumulative figures as of November 2018
Source: Datastream,Turkstat
17.4
70.1
12.0
2005
Capital Goods
Intermediate Goods
Consumption Goods
28.1% of imports are from Russia, China and Germany.
Top 10 Import Markets
2005 % of
total
1. Germany
2. Russia
3. Italy
4. China
5. France
6. USA
7. UK
8. Switzerland
9. Spain
10.South Korea
11.7
11.1
6.5
5.9
5.0
4.6
4.0
3.5
3.0
3.0
The share of first 10 58.3
2018* % of
total
1. Russia
2. China
3. Germany
4. USA
5. Italy
6. France
7. UK
8. India
9. Iran
10.South Korea
9.6
9.4
9.1
5.5
4.6
3.4
3.4
3.3
3.1
2.9
The share of first 10 54.2
Imports
Composition of Imports (%)
12
(*) 12-month cumulative figures as of November 2018
Source: Turkstat
13.4
75.8
10.4
2018*
Tourism
19 17
19
23 23 23
25 25
28 30
27
19
22
25
2005 2007 2009 2011 2013 2015 2017
Tourism Revenues* (USD bn)
Tourism sector has recovered considerably.
13
0.9
1.0
1.2
1.4
2.1
2.1
2.2
2.3
4.5
5.9
Azerbaijan
Netherlands
Iraq
Ukraine
Iran
Georgia
UK
Bulgaria
Germany
Russia
The Number of Tourists (million persons)
2018*
2017
2016
Number of Tourists
2015: 36.2 mn
2016: 25.4 mn
2017: 32.4 mn
2018*: 39.2 mn
(*) 12-month cumulative figures as of November 2018
Source: CBRT, Ministry of Culture and Tourism
Saving-investment gap of Turkey…
Savings & Investments
Source: Turkstat, New Economic Program (2019-2021)
1.7
5.7
8.8
5.5 6.6
4.6 3.6 3.8
5.6 4.6
3.2 2.7 2.5
21.4 21.3 22.5 22.8 23.2
24.4 24.8 24.5 25.4 25.9 25.3
26.3 26.8 23.0
27.0
31.3
28.3 29.8
29.0 28.3 28.3
31.0 30.5
28.5 29.0 29.3
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Investments and Savings (% of GDP)
Saving Gap
Savings
Investments
New Economic Program
Forecasts
14
Current account deficit started to decline.
4.2
5.7 5.5
5.1
1.8
5.8
8.9
5.5
6.7
4.7
3.7 3.8
5.6
2005 2007 2009 2011 2013 2015 2017
Current Account Deficit (% of GDP)
Current Account Balance
Nov. 33.9
-60
-40
-20
0
20
40
60
80
100
2011 2012 2013 2014 2015 2016 2017 2018
Financing of CAD (12-month cumulative, billion USD)
Foreign Direct and Long Term Investments*
Portfolio and Short Term Investments**
Current Account Deficit
(*) Long term capital movements are sum of banking and real sectors’ long term net credit and bonds issued by banks and the Treasury
(**) Short-term capital movements are sum of banking and real sectors' short term net credits and deposits in banks.
Source: Turkstat, CBRT 15
Volatile capital inflows....
Source: CBRT
Capital Flows
-15
-10
-5
0
5
10
15
20
25
30
Jan.16 Jul.16 Jan.17 Jul.17 Jan.18 Jul.18
Portfolio Inflows (12-month cumulative, billion USD)
Debt Securities
Equity Securities
0
4
8
12
16
20
Jan.16 Jul.16 Jan.17 Jul.17 Jan.18 Jul.18
Bin
ler
Foreign Direct Investment Inflows (12- month cumulative, billion USD)
16
6
10
14
18
22
26
30
Jan.18 Mar.18 May.18 Jul.18 Sep.18 Nov.18 Jan.19
Interest Rates (%)
Interest Rate Corridor
One Week Repo Rate
CBRT Weighted Average Cost of Funding
Late Liquidity Window
Monetary Policy
Central Bank has implemented tight liquidity policy.
20.3
4
8
12
16
20
24
28
2012 2013 2014 2015 2016 2017 2018
Annual CPI Inflation* (%)
17
(*) Latest figure as of December 2018
Source: CBRT, Turkstat, Datastream
80
100
120
140
160
180
200
Jan.18 Apr.18 Jul.18 Oct.18 Jan.19
USD vs Local Currencies (Dec. 31, 2017 = 100)
Turkey
Brazil
Russia
Indonesia
South Africa
Latest figure as of January 14, 2019
Source: Datastream
Financial Markets N
om
inal depre
cia
tion in local curr
ency
Emerging market currencies have volatile course.
18
70
80
90
100
110
120
130
Jan.18 Apr.18 Jul.18 Oct.18 Jan.19
Equity Indices (Dec. 31, 2017 = 100)
Turkey Brazil
Russia Indonesia
South Africa
Latest figure as of January 14, 2019
Source: Datastream
Financial Markets
Risk premiums of emerging markets…
19
50
150
250
350
450
550
650
Jan.18 Apr.18 Jul.18 Oct.18 Jan.19
5Y CDS Spreads (bps)
Turkey
Brazil
Russia
Indonesia
South Africa
5
8
11
14
17
20
23
26
29
Jan.18 Apr.18 Jul.18 Oct.18 Jan.19
5Y Government Bond Yields (%)
Turkey
Brazil
Russia
Indonesia
South Africa
Banking Sector Dynamics
Banking Sector Dynamics
Increased intermediation activity by financing the growth of Turkish economy
Diversification of funding sources by increasing access to international markets
Shifting focus from growth to asset quality and stable funding structure
Strengthened asset quality confirmed by low NPL ratios
High capital adequacy ratio
Strong growth potential
21
Increase in foreign bank presence…
(*) Excluding the banks under the administration of the SDIF
Source: BRSA
Basic Indicators
22
8 9
15
28
25
13
2004 November 2018
Number of Banks*
Public
Foreign
Domestic Private
50 48
58
34
3
28
38 38
2004 November 2018
Share in Total Assets (%)
Public
Foreign
Domestic Private
Branch network and banking sector employment…
Latest figure as of November 2018
Source: BRSA
Basic Indicators 6
,52
1
7,2
56
8,0
71
9,2
50
9,5
26
10
,00
0
10
,44
0
10
,98
1
11
,90
3
12
,12
5
12
,18
5
11
,66
4
11
,50
8
11
,52
1
2005 2007 2009 2011 2013 2015 2017
Number of Domestic Branches
23
13
8,1
69
15
0,4
62
16
7,2
12
18
2,1
00
18
3,6
14
19
0,5
86
19
4,6
17
20
0,7
45
21
3,4
31
21
6,0
63
21
6,7
22
21
0,1
12
20
7,5
32
20
6,7
12
2005 2007 2009 2011 2013 2015 2017
Number of Domestic Staff
23
17 17 12 13
0
16 20
13 15 13 14
12
19
50
57
40
30 29
7
34 30
16
32
19 20 17
21
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Nominal GDP Growth (%)
Loan Growth (%)
228
744
2004 November2018
Assets (bn USD)
X3.3
Basic Indicators
143
386
2004 November2018
Deposits (bn USD)
X2.7
74
462
2004 November2018
Loans (bn USD)
X6.2
34
81
2004 November2018
Equity (bn USD)
X2.4
Strong growth performance in the banking sector…
24 Source: BRSA, Turkstat
Increasing financial intermediation role of banks…
Source: BRSA
Balance Sheet Items
25
32
62
40
12
15 15
12 11
2004 November 2018
Asset Composition (%)
Other Assets
Cash+Banks
Securities
Loans
62
52
11
15
0 4
15 11
11 18
2004 November 2018
Liability Composition (%)
Other Liabilities
Shareholder's Equity
Securities Issued
Banks
Deposits
Deposits
Latest figure as of January 4, 2019
Source: BRSA
Deposits have been the main funding source of the banking sector.
26
-15
-10
-5
0
5
10
15
20
25
30
2013 2014 2015 2016 2017 2018 2019
Deposit Volume (annual % change)
TL Deposits
FX Deposits in USD Terms
Total Deposits (exchange rate adjusted)
49.9
44
48
52
56
60
64
68
2013 2014 2015 2016 2017 2018 2019
Share of TL Deposits in Total (%)
Loans
Loan growth has lost momentum since the last quarter of 2017.
27
59.2
55
59
63
67
71
75
2013 2014 2015 2016 2017 2018 2019
Share of TL Loans in Total (%)
-5
0
5
10
15
20
25
30
2013 2014 2015 2016 2017 2018 2019
Loan Volume (annual % change)
TL Loans
FX Loans in USD Terms
Total Loans (exchange rate adjusted)
Latest figure as of January 4, 2019
Source: BRSA
NPL ratio has remained at low level.
(*) Latest figure as of November 2018
Source: BRSA, EBA
Non-Performing Loans
0.8 0.9 1.2 1.4 1.5 1.6 2.0 2.1 2.3 2.5 2.9 3.1 3.2 3.4 3.5 4.1 5.3 6.0 6.7 6.8 7.9 8.7 9.4
12.0 34.1
43.4
LuxembourgSwedenFinland
UKNorway
GermanyNetherlands
BelgiumDenmark
LatviaFranceAustriaTurkey
EU AverageMaltaSpain
PolandRomaniaHungary
IrelandSloveniaBulgaria
ItalyPortugal
S. Cyprus**Greece
NPL Ratio (%, 2018/Q3)
28
4.7
3.7
3.5
3.7
5.3
3.7
2.7
2.9
2.7
2.8
3.1
3.2
3.0
3.7
2005 2007 2009 2011 2013 2015 2017
Non-performing Loan Ratio* (%)
Manufacturing industry has the highest share among main industry groups.
Loans by Sectors
29
0.1
0.5
4.7
3.4
1.9
4.7
2.5
3.8
4.5
3.1
2.1
2.2
3.2
4.1
5.6
5.8
7.3
8.8
14.3
18.7
Defense and Public Administration
Financial Intermediation
Tourism
Agriculture, Hunting and Forestry
Transportation, Storage and Communication
Real Estate Bro., Renting and Business Act.
Electricity, Gas and Water Resources
Construction
Wholesale and Retail Trade
Manufacturing industry
Loans by Main Industry Groups
Share (%)
NPL (%)
Source: BRSA
Non-manufacturing sectors have the highest credit demand.
Loans by Sectors
30
0.3
3.1
4.5
4.9
3.1
2.9
1.6
4.4
3.4
4.8
1.6
1.9
2.5
2.8
3.2
3.2
3.6
3.7
4.0
8.8
Financial Institutions
Retail sell of motor vehicles and oil
Hotels
Food, beverage and tobacco
Main metal
Textile
Research, consulting etc
Retail trade
Agriculture
Wholesale trade
Loans by Sectors
Share (%)
NPL (%)
Source: BRSA
Short-term FX risks have been managed carefully by the non-financial sector.
Source: CBRT
Net FX Position of NFCs
10.3 10.0 -3.8 -0.9 -3.6 1.1 5.2 1.3 7.2 6.9
-77 -99
-114 -136
-168 -180 -195
-207 -221 -210
-67
-89
-118
-137
-171 -179
-190 -206
-214 -203
2009 2010 2011 2012 2013 2014 2015 2016 2017Oct
2018
Net FX Position of the Non-Financial Sector (bn USD)
Long Term Net FX Position
Short Term Net FX Position
Net FX Position
31
Majority of FX loans of non-financial companies were raised from domestic banks.
57 62 55 61 64 67 69 68 78 76
9 11
11 12 13 12 12 12
15 17 13
13 16
16 17 22 18 19
21 24
2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct 2018
FX Assets of NFCs (bn USD)
Direct InvestmentAbroad
Export Receivables
Deposits
50 82 102 122
155 172 174 178 183 173 82 76
78 82
82 81 86 94 105 108
15 18
20 22
28 28 30
33 41 40
2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct 2018
FX Liabilities of NFCs (bn USD)
Import Payables
External Loans
Domestic Loans
Source: CBRT
FX Assets & Liabilities of NFCs
32
Turkey’s external financing needs in the coming 12 months…
October 2018 (*)
(bn USD) Share (%)
Central Bank 5.7 3.3
General Government 3.9 2.2
Banks 92.9 53.4
Credits 46.3 26.6
FX Deposits 18.5 10.6
Bank Accounts 15.2 8.7
Branches and Affiliates Abroad 7.7 4.5
TRY Deposits 12.9 7.4
Branches and Affiliates Abroad 4.7 2.7
Other Sectors 71.4 41.1
Trade Credits 46.2 26.5
Other Credits 25.2 14.5
Public 0.1 0.0
Private 25.2 14.5
Total 173.8 100.0
(*) External debt maturing within 1 year or less regardless of the original maturity.
Source: CBRT
Short Term External Debt Stock
111
198 188
332
108 101 85
119 101
126 148 144
111
143
2012 2013 2014 2015 2016 2017 Nov2018
12-Month Long-Term Debt Roll Over Ratio
(%) Banking Sector
Non-banking Sector
33
In line with strict regulations, FX liabilities belong mostly to large-scale
corporates that generate or have potential to generate FX revenues.
Not: Loans extended abroad and used via the intermediacy of domestic banks are included.
Source: CBRT
Firm Size Breakdown of Domestic FX Corporate
Loans (% share)
Breakdown of FX Loans
Micro
Medium
Small
Large (Rha)
Breakdown of Corporate FX Loans by Amounts (% share, # of companies)
34
Non-Deposit Sources
(*) Latest figure as of January 4, 2019
(**) Latest figure as of November 2018
Source: BRSA
Banks have diversified their funding sources.
35
26.1
20.2
13.5
2005 2007 2009 2011 2013 2015 2017
External Borrowings of the Banks** (outstanding amount, billion USD)
Eurobonds Syndication Loans Securitization Loans
Double Investment
Grade
(May 2013-
Sep.2016)
-60
-40
-20
0
20
40
60
2012 2013 2014 2015 2016 2017 2018
Net FX Position* (billion USD)
Net On Balance Off Balance
Turkish banks continued to be very well capitalized.
Capital Adequacy Ratio
11.0
13.7
14.6
15.6
15.9
16.1
16.3
17.1
17.6
17.7
17.7
18.3
18.4
18.5
18.7
19.2
19.6
20.3
20.4
20.8
21.1
22.7
PortugalItaly
SpainTurkey
S. CyprusPoland
HungaryGreeceAustriaFrance
MaltaCzech Rep.
BelgiumEU Average
GermanySlovakiaSloveniaBulgariaCroatiaLatvia
IrelandNetherlands
Capital Adequacy Ratio (%, 2016)
36
23.7
21.9
18.9 18.0
20.6
19.0
16.6
17.9
15.3
16.3 15.6
15.6
16.9 18.2
2005 2008 2011 2014 2017
Capital Adequacy Ratio* (%)
Legal Limit of 8%
Target Rate of 12%
(*) Latest figure as of November 2018
Source: BRSA, EBA
Alternative Banking Channels
Source: The Banks Association of Turkey
230
36,785
2011 Q1 2018 Q3
Mobile Banking (number of active customers, thousand
persons)
7,227
12,604
2011 Q1 2018 Q3
Internet Banking (number of active customers, thousand
persons)
X1.7
X159.7
37
A promising innovative future for mobile banking in Turkey…
Profitability
Net interest margin is 4%.
38
5.4%
4.3%
3.5%
4.1%
3.7% 3.5% 3.5%
3.6% 3.8%
3.9%**
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
NIM*
36%
41%
44%
41% 43%
45% 46%
40% 38%
34%***
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cost / Income Ratio
(*) Net interest income / average total assets
(**) 12-month cumulative as of November 2018
(***) As of November 2018
Source: BRSA
Profitable banking sector...
Profitability
2.6% 2.5%
1.7% 1.8%
1.6%
1.3% 1.2%
1.5% 1.6% 1.6%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Q3
ROAA
23%
20%
15% 16% 14%
12% 11%
14%
16% 16%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Q3
ROAE
39
Source: BRSA
Latest figure as of January 14, 2019
Source: Datastream
Stock Exchange Performance
40
60
80
100
120
140
160
180
200
220
240
260
30
40
50
60
70
80
90
100
110
120
130
2013 2014 2015 2016 2017 2018 2019
Bin
ler
Stock Exchange Performance (thousands)
BIST-100 Index Banking Sector Index (right axis)
Turkish equity market was under pressure in 2018.
Source: BRSA, Turkstat, ECB, Eurostat
272
164
38
157
105
68
6
55
Assets/GDP
Loans/GDP
Housing Loans/GDP
Deposits/GDP
Banking Sector’s Comparison with Euro Area (2017)
(%, 2015)
EA-19
Turkey
Despite the fast growth in the sector, penetration ratios are still low.
60
63
66
74
83
87
87
87
96
98
10
1
10
5
10
5
2005 2007 2009 2011 2013 2015 2017
Banking Sector’s Assets in Turkey (% GDP)
Banking Sector Comparison
41
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