The U.S. trial against Turkish-Iranian gold trader Reza Zarrab, seen as a case turned into a political move against Ankara, will not affect the Turkish banking sector, the country's officials said. Speaking during a live broadcast on NTV Thursday, President Recep Tayyip Erdoğan's chief economy adviser Cemil Ertem said he does not think the U.S. trial will cause problems for the Turkish economy, adding that there was no systemic risk in the banking sector. "The discussion of the effect of the case on banks is based on political motives. Our public bank [HalkBank] has not done anything outside international regulations. There is no risk associated with it," Ertem said.
Turkey's banking sector can withstand any shock, Turkey's deputy prime minister responsible for the economy, Mehmet Şimşek, said, adding that the government is ready to do whatever is necessary to support its banking sector.
Referring to the ongoing legal proceedings in the U.S., Şimşek said earlier: "If the banking sector is affected by this case, we will do whatever is needed. We're watching this case, which has considerable political dimensions. Nevertheless, the banking sector is quite resilient when faced with shocks."
The market fluctuations are temporary and will pass, including those stemming from the U.S. case against Zarrab, Şimşek added. Moreover, Banks Association of Turkey (TBB) head Hüseyin Aydın previously told Reuters that the sector expected the trial to wrap up soon, saying its impact on Turkey would be "minimal."
Reza Zarrab was arrested in Miami in March last year on charges of engaging in hundreds of millions of dollars of transactions on behalf of the government of Iran and other Iranian entities, which were barred by U.S. sanctions, while allegedly laundering the proceeds and defrauding several financial institutions by concealing the true nature of the illegal transactions.
Zarrab has pleaded guilty and testified as the prosecution's key witness at the U.S. trial of a banker on charges the two of them violated economic sanctions against Iran, ending weeks of speculation in a case that has strained relations between the U.S. and Turkey.
Turkish officials have argued that the case has been turned into a political move against Ankara. Turkey's claims regarding the matter actually were supported by the direct links between the judge overseeing the Zarrab case and the Gülenist Terror Group (FETÖ) led by fugitive preacher Fetullah Gülen, who has been living in self-imposed exile since 1999 in Pennsylvania.
BANKING SECTOR TO
Meanwhile, the Turkish banking sector will remain resilient against global risks since it has a strong capital base, stable asset quality and adequate level of liquid assets, the Central Bank of the Republic of Turkey said yesterday. "Despite the positive outlook in the global economy and financial markets, risks related to the upcoming period remain intact. The developments in the monetary policies of advanced countries, global geopolitical risks and political developments in the eurozone are among the possible factors of fragility for the financial system," the bank said in its November financial stability report. It noted that the recovery in the global economy continued since its previous Financial Stability Report released in May.
"In Turkey, thanks to the macro prudential policies that have been implemented in tandem with public financial incentives and support, credit growth has exhibited a stronger outlook than in previous years and economic activity has accelerated," it explained.
The bank's report said strong outlook in economic activity continued in the third quarter.
Turkey's economy grew 5.2 percent in the first quarter of this year and 5.1 percent in the second quarter, compared with the same periods in 2016, according to the Turkish Statistical Institute (TurkStat).
Profitability of firms increased, liquidity indicators improved and balance sheets remained robust on the back of a strong growth performance of second quarter of 2017, the bank said.
"The banking sector preserves its strong liquidity position against possible shocks," it said. The report showed the banks' liquid assets in gold and foreign exchange that they held in the Central Bank under the framework of the Reserve Options Mechanism facility had recently increased.
"Despite the recent increase in credit growth, strong growth in deposits offers banks an additional protection for their liquidity positions and supports credit supply," it said. The bank noted that asset quality of the banking sector is strong. "With the revitalization of the credit channel and the pick-up in economic activity, the decreasing amount of additions to Non-Performing Loans (NPLs) and write-offs as well as the rising amount of receiving compared to the previous report period contributed to the preservation of asset quality." It added the banking sector sustains its strong capital structure. Profitability developments also support the equity and capital adequacy levels in the banking sector, it also said.