CEIC News@lert: Is the Turkish Banking Sector Still Strong Enough to Overcome the Risks?

April 10, 2014 - HIGHLIGHTS: The Turkish banking sector has continued to grow in 2013, with its total asset size reaching TRY 1.73 billion as of December 2013 and scaling up by TRY 361.8 million compared to the end of 2012. The sector’s profit increased to TRY 24.7 million and grew by 4.6 % on a year on year basis. This was mainly generated by net interest income even though it slowed down in the second half of the year - after the hikes in the policy interest rate, which yielded a decreased net interest margin of 3.7% at the end of 2013. As of the first quarter of 2013, the funding costs of the Turkish banking sector began to rise. The policy interest rate rise mainly affected deposit rates, which with restrictions on credit cards and consumer loans caused a drop in domestic consumption in almost all sectors, impairing the banking sector growth rate. The sector’s growth rate amounted to 7% and 7.9%, respectively, during the second and third quarters of 2013, but only 5.1% in the last quarter of 2013. In 2013, Turkish banking sector asset growth was mainly generated by loans, required reserves and securities and was funded by the deposits, repo transactions and payables to banks. At the end of 2013, loans constituted 60% of total assets and amounted to TRY 1.05 billion, representing a 31.8% increase compared to the end of the previous year, while securities constituted 16.6% of total assets and amounted to TRY 286.7 million. As a result of the Central Bank’s Reserve Option Mechanism policy, which aims to support the FX reserve management of the banking system and to limit the adverse effects of excess capital flow volatility on macroeconomic and financial stability, the required reserves amounted to TRY 155.7 million as of the end of 2013 (almost 9% of total assets), having increased by 56% compared to the previous year. On the funding side, deposits accounted for almost 55% of total liabilities, reaching TRY 945.8 million by the end of 2013 - a 22.5% year on year increase. Banking sector payments and repo transactions were the other important funding tools, representing 15% and 7% of total liabilities respectively. The graph (above) shows the 31.8% and 22.5% year on year respective increases in loans and deposits for 2013. The slowdown of the growth rates can be observed for the last quarter of 2013. The same trend is also observed on the deposit side. The growth of deposits amounted to 7.8% in the third quarter, but slowed down to 4.8% in the last quarter of 2013. Non-Performing Loans as of the end of 2013 stood at TRY 29.6 million, representing a 26.4% increase compared to the end of the previous year. Turkish banks may face pressure in 2014 from rising interest rates, slowing economic growth and a weakened Turkish lira. The tighter regulations on credit card payments and private consumer loans leading to slowdown in overall loan growth, together with potential interest and currency shocks are the greatest risks to the Turkish banking sector. However Turkey’s banks have gone into 2014 with low levels of non-performing loans (impaired loans represented 2.7% of total loans at the end of 2013) and strong capital adequacy ratios (averaging 15.3% in December 2013) meaning that the sector’s resilience to the vulnerabilities and unforeseen shocks is still strong and it has significant loss-absorption capacity. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
10th April 2014 CEIC News@lert: Is the Turkish Banking Sector Still Strong Enough to Overcome the Risks?