Three more foreign banks eye Turkish market

Banking Regulation and Supervision Agency (BDDK) President Mehmet Ali Akben has said that three foreign banks were interested in expanding their banking activities in Turkey and might join the market "as early as 2017."

More banks from the Far East and Gulf region might follow the footsteps of the Bank of China, which started operating in Turkey, and the Bank of Bahrain and Kuwait (BBK), which opened a representation office in Turkey and was also interested in acquiring a banking license, Akben said. For instance, a bank in Dubai is currently conducting a project regarding the banking sector in Turkey, he said.

The BDDK president noted that a financial group from the U.S. have plans to set up a bank in Turkey, saying, "We currently have three banks on our list that are interested in banking activities in Turkey, which, of course, means they will go through a process, but we think they might be in Turkey in 2017." Pointing out China's serious trade volume with Turkey, on the other hand, Akben said the presence of Chinese banks in Turkey is important for China as well. He also revealed that the BDDK has recently concluded negotiations with equivalent institutions of several countries, mainly India.

Akben said, "These negotiations show they have some plans about Turkey in their minds. These are the first steps." He noted that this interest in Turkey will increase even further once the regional problems are solved.

Akben said co-operative banking is very common in Europe and it is possible to bring a similar initiative to this region. Recalling that there used to be banks that supported agriculture or tourism and were interested in the Anatolian region, he said, "Strong and cooperative groups are needed here. We can get into these areas." He suggested that a new initiative for the banking sector in 2017 can be considered both with the public partnership on the participation banking sector and with the small and large corporate partnership on the cooperative banking side. "Maybe even over the coming period, our foreign banks could perhaps expand and spread towards Europe, which is an issue that we previously discussed with them," Akben said, adding that their expansion might provide an advantage.

With regards to making the regulatory and supervisory framework of the Turkish banking sector equal to that of the EU, Akben said, the Turkish banking system, with all its supervisions and implementations, was accepted to be on par with European banks.

While this situation will reduce the borrowing costs of banks in Turkey, banks with foreign capitals, such as BBVA and ING, will now be subject to their own risk weight in their own countries, said Akben. He added that these will be positively reflected in the banks' capital adequacy ratios and they will no longer have difficulty bringing capital to Turkey. "Turkish banking, as you can see, is based on solid foundations and continues this feature even in this fragile environment," the BDDK president said.

In addition, Akben confirmed that a comprehensive draft law on regulations related to the interest-free finance sector was ready and BDDK were putting the final touches. "This draft law will cover all interest-free finance products and address all issues, hoping that after all other works that have been done, the draft law will pass to the enactment phase within a short time," he said. He also noted that conventional banks currently do not have a demand to establish a participation bank in Turkey.

Furthermore, underlining the importance of technology in banking, Akben said the channels for branch-free banking have developed massively and that the BDDK has kicked off a project on the legislation side in some rules of banking, such as documents, account books, contracts and wet signatures. "Hopefully, next year we will make some arrangements that will give banks technological advantages in stationery and archiving. We will have serious regulation-oriented efforts on the technology side," he added.

The president of the BDDK also stated that the Treasury has been working on some state-owned banks including the Development Bank and Eximbank in collaborations with his organization, in order to make them more functional. "We would like to encourage this sector. Investment banks have specialized in providing cheaper credits from abroad. They can find special credits for projects. I hope that there will also be mobility in this field. Investment banks need to bring initiatives in this side," he said about investment banks. Akben revealed, capital adequacy ratio in the banking sector is currently at 16 percent while as of the end of October, the credit conversion rate of deposits in the sector stood at 124.5 percent.

While, the return on assets was at 1.6 percent, the return on equity at 14.8 percent, the net interest margin at 3.6 percent, the banking sector's total assets/GDP ratio was at 104.7 percent, free capital/total assets ratio stood at 7.9 percent and leverage ratio was at 8 percent.

Meanwhile, the total amount of loans in the banking sector was TL 1,763,644,756 ($502,856,900) as of Dec. 9, 2016 and that this figure, excluding the exchange rate and parity effect, was 14.2 percent higher than the same period previous year, which was caused by the effects of the slowing down of the world economy on Turkey.