turkey: recent developments and future prospects · turkey: recent developments and future...

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


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.


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


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


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



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


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


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


Imports

Composition of Imports (%)

12


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


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


Equity Indices (Dec. 31, 2017 = 100)

Turkey Brazil

Russia Indonesia

South Africa


Source: Datastream

Financial Markets

Risk premiums of emerging markets…

19

50

150

250

350

450

550

650


5Y CDS Spreads (bps)

Turkey

Brazil

Russia

Indonesia

South Africa

5

8

11

14

17

20

23

26

29


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


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)


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


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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