• Banking Sector in Turkey and the Expectations for Basel III
  • October 22, 2013
  • Law Firm: HERDEM Attorneys At Law - Istanbul Office
  • The private banks are leading the sector with 45.7% of the overall branches, public banks own 27.8% of the overall branches in Turkey and the banks with foreign capital currently own 18.3% of the total branches in the Turkish banking industry. 44.6% of the workforce employed in the Turkish banking sector works for the private banks, 25.3% in public banks and 19.7% works in banks with foreign capital.

    The Size of the Turkish Banking Sector

    Total assets of the Turkish banking sector grew by 11.5% during the first six months of the year 2013 and reached 1.528 billion dollars. Despite the fluctuations in the global and the Turkish economy, the banking sector grew by 4.2% during the first quarter of the 2013 and by 7% during the second quarter of the same year. The total credits issued by the banks operating in Turkey grew by 4.9% in the first quarter of 2013 and by 10.5% during the second quarter of the year 2013. In real terms the credits issued by the Turkish banking sector grew by 126.4 billion Turkish liras since the end of 2012 and reached 921.2 billion Turkish liras as of June 2013. The total volume of securities hold by the Turkish banking sector stands around 274 billion Turkish liras as of June 2013 and the level of deposits reached 62.4% amounting 837.7 billion Turkish liras. As of June 2013 the net profit of the Turkish banking sector grew by 19.7% compared to the same period of the previous year and reached 13.859 billion Turkish liras. As the numbers demonstrate the Turkish banking sector has a healthy and a stable outlook and the regulatory framework that the Turkish banking sector is subjected to plays a prominent part in this success.

    Regulatory Framework: Basel ll and Basel lll

    After the 2008 global economic meltdown and the financial risks that have emerged afterwards, the Basel II has started to be increasingly perceived as inadequate to deal with such situations of financial collapse and the Basel III has come in to the fore in order to buttress the previous Basel II regulation. The most critical addition that the Basel III regulation has introduced was the new understanding that deals with the capital adequacy of the banks. However, in that regard the past experiences of Turkey with extreme economic fluctuations have proven very useful.

    After the 2001 economic crisis in Turkey, a new regulation was adopted which reorganized the Turkish banking system along more stable lines. Reorganization has disciplined the Turkish banking system to an extend that the Turkish banking industry has emerged as the sole banking industry among the OECD countries that did not require public financial support after the 2008 global economic crisis. Moreover, by the regulations following the 2001 economic crisis in Turkey, the Turkish banking sector has managed to establish better internal auditing and controlling mechanisms and attained high levels of liquidity as well as low levels of leverage ratio accompanied by high levels of deposits. Given the transformation the Turkish banking industry has gone through, the compliance of Turkey with Basel III regulation is expected to be rather smooth.

    In that regard the Capital Adequacy Regulation in Turkey has already been made compliant with the requirements of Basel II in 2007 and the Basel II itself has been adopted in July 2012. As of March 2013 the Capital Adequacy Ratio of the banks operating in the Turkish market is 17.4% which is above the minimum level required by Basel III. The implementation of Basel II has already started and the deadline for the report period of Basel III leverage ratio has been set as January 2014. The Basel III is expected to further strengthen the macroeconomic stability in Turkey, contributing to the transparency of the country's banking sector and clamp down the grey economy.