Foreign banking share in Turkey now 35.6 percent
Posted by meb at February 5th, 2007
Recent stability in Turkey’s banking sector has upped the share of foreign investors to 19.8 percent from only 3 percent five years ago, and when their holdings in the stock exchange are included, their stake reaches 35.6 percent.
When the National Bank of Greece increased their share in Finansbank a few weeks ago from 46 percent to 94.6 by buying minority shares on the stock exchange, the share of foreigner investment rose to approximately 39 percent. At present there are 25 foreign banks operating in Turkey as bank owners, strategic partners or share holders. Of all the 46 banks in Turkey, 15 are controlled completely by foreign administrations while 10 others have a foreigner partner.
Foreign participation, which started as the first sparkles of recovery were seen after the February 2001 crisis and accelerated as the economy grew extraordinarily while inflation fell, continued to expand as Turkey’s public sector borrowing requirements fell.
Following the positive results of the EU summit held on Dec. 17, 2004, foreign interest in Turkey’s banking peaked.
Bankers have declared untrue the popular saying that banks with foreign shares of less than 50 percent should not be considered ‘foreign” banks. Mehmet Çekinmez, the former president of Yapı Kredi Bank’s administrative board, points out that despite foreign investors being “minority partners,” they often have the final word at meetings. “Who makes decisions about the bank’s operational periods?” asks Çekinmez: “If you look at the banks’ administration boards, you will see that the minority partner always has the final word in such decisions.”
Moreover, the “market-maker system” that was put into effect in 2002 to simplify Treasury borrowings has increased the volume of foreign share and put the subject in the spotlight. While just one of the 10 banks that the Treasury chose to borrow from in 2002 had a foreign share in its capital, six of the 12 chosen banks in 2006 were based on foreign capital. This situation has led Treasury officials to ponder the possible consequences. According to economists, the number of domestic banks that are able to keep pace with standards such as capital adequacy and active quality — set by the Treasury — is falling, and in the future, this trend may present a problem for Treasury borrowing policies. Economists note that foreigners may withdraw due to sudden changes in economic uncertainty or macro-economic shifts, which could cause market rates to ascend to unseen heights, and for the same reason suggest the necessity of establishing limitations for foreign banks operating in Turkey.
Several economists point to Italy as an example, recalling that Western countries limit foreign banks with “non-tariff barriers.” In Italian Banco Antonveneta’s purchase by Holland ABN Amro, it was discovered that the institution responsible for inspection of the sector was blocked through bureaucratic methods by the Italian Central Bank, and then President Antonio Fazio had to leave the function he performed for 12 years.
‘Foreign banks strengthen Turkish economy’
The increasing share of foreign banks in the Turkish finance sector is of critical importance since it improves the overall resistance of Turkey’s economy, says Bülent Gültekin, former governor of the Central Bank of Turkey (TCMB).
As integration with global markets becomes greater, the economy becomes more vulnerable to international events, Gültekin points out. To avoid huge capital outflows such as the one that occurred in May and June of 2006, when the US Federal Reserve decided to increase interest rates, foreign direct investment must be attracted into the country rather than portfolio investments, usually called “hot money.” Gültekin underlines the necessity of attracting foreign investment, especially in the banking sector, so that the fragile aspects of the sector can be strengthened.
Gültekin, who broke his long silence in an exclusive interview with weekly news magazine Aksiyon, offered impressive explanations about Turkey’s financial agenda. Gültekin is critical of the government’s plans to move the TCMB’s headquarters from Ankara to İstanbul. Citing the decision to move the center to İstanbul has no credible explanation, the experienced banker says the step will ultimately change nothing for the bank in today’s world of developed communication. “Moreover, while we have successful examples like the United States and Germany, where capital and financial centers are separate, how shall we evaluate the government’s proposal?” asks Gültekin. He opines moving the central bank from the place it has occupied since 1933 in fact demonstrates an effort to change its identity.
Gültekin says the central bank had an autonomous identity between 1931 — its date of establishment — until 1949, when it was changed by İsmet İnönü. The central bank was entrusted with the mission of supplying the Treasury and other government organizations with money in the last year of İnönü’s presidency. “Because governments had failed to collect taxes efficiently, the Treasury couldn’t perform healthy borrowing, and financial markets weren’t sufficiently developed, so the central bank had to work as a budget-financing mechanism,” said Gültekin.
The bank was transformed back into an autonomous body in 2001 by Kemal Derviş, Turkey’s former economy minister credited with helping Turkey recover from the terrible financial crisis that year. “(The central bank) is very important for the future of the country. Germans have this famous saying: I trust in God first, then in Bundesbank. The German Central Bank managed to achieve an unshakable credibility and earned a much respected position both in its own country and in the international community,” says Gültekin.
source: www.todayszaman.com
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