Turkish banks come back with vengeance
Posted by meb at March 6th, 2008
As global banking giants wrestle with multibillion-dollar writeoffs due to the impact of the U.S.-based subprime mortgage turmoil, Turkish banks are beating even the most optimistic profit estimates.
In 2007, Turkish banks made an overall profit of YTL 40.8 million a day, YTL 1.7 million in an hour and YTL 28,400 in a minute.
One of the major reasons for this “return with a vengeance” is that the sector has undergone a crucial transformation in the aftermath of the 2001 crisis. Changes in the global economic and political architecture after the Sept. 11 attacks, as well as the domestic stability attained with the one-party government, positive developments in the European Union accession process and the government’s sticking to the International Monetary Fund (IMF) program are other reasons. The decline in inflation and the liquidity abundance created by high oil prices also played its role.
The banking structure changed within the last six years as foreign capital inflow reached an all-time high and the public sector’s borrowing requirement declined. Between 2002 and 2007, foreign direct capital inflow totaled $48 billion. Of this, $22.7 billion went to the financial sector, mostly to banking and insurance. The share of foreign capital in banking climbed to 30 percent. Together with the shares in the Istanbul Stock Exchange (IMKB), this figure reaches 43 percent.
Back to basics:
As the public sector borrowing requirement declined; banks, which until the 2001 crisis made most of their profits from lending to the government, turned toward their “core” business, i.e. credits. Abundant liquidity in global markets and an overvalued YTL added to this, and have contributed to 2007’s impressive performance for Turkish banks, which get indebted in foreign currency and distribute loans in YTL.
The ratio of loans to deposits rose from 31.7 percent to 80 percent between 2001 and 2007. The ratio of loans to assets was also up from 21.9 percent to 49.2 percent over the period. Within the six-year period, assets rose by 243 percent, while loans grew by 670 percent.
Having entered an intense competition particularly in credit cards and consumer loans, banks reaped huge profits with the impact of interest rates standing at double the level of inflation. The depreciation of the U.S. dollar also contributed to profits.
Huge difference:
In 2001, 61 banks bore losses of YTL 11.2 billion, while in 2007 the profits of 46 banks totaled YTL 14.9 billion. During the period, the banks’ staff rose by 21,000 to 158,559 persons. Despite the decline in the number of banks, 710 more branches were opened. The number of banks to bear losses declined from 47 to five as of September 2007, compared to 2001.
The restructuring that was implemented in the banking sector after the 2001 crisis cost $47.2 billion. The restructuring process created an additional burden of $21.9 billion for public banks and $17.3 billion for the banks transferred to the Savings Deposit Insurance Fund (TMSF).
The cost of restructuring to the private sector was, meanwhile, $7.9 billion. Out of this amount, the TMSF and private sector banks undertook $5.2 billion and $2.7 billion respectively. The profit of the restructured Turkish banking sector in the last six years is $35.13 billion.
Source: Referans via Turkish Daily News
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