By Suleyman Degirmen
Department of Economics, Mersin University
In recent years,
foreign banks have more willingness to increase their operations in Turkey.
After the crisis of February 2001, Demirbank was sold to HSBC. From February 2005, fifty percent of Turkish Economy Bank,
Disbank and Yapi Kredi Bank have been respectively sold, in a row, to BNP
Paribas from France, Fortis, the consortium
of Koc Financial Services and UniCredito. Additionally, Sitebank, fifty percent
of Garanti Bank, C Bank, Finansbank, Tekfenbank, Denizbank, Sekerbank have
respectivley been sold to Novabank from Greece, Bank Hapoalim from Israil, NBG
from Greece, EFG from Greece, Dexia, and Bank Turan from Kazhakistan. Oyakbank,
Akbank, and state owned banks are projected for selling to foreign financial
companies or banks. According to the research, the foreign banks participation rate to the TBS in terms of assets,
deposits and loans are between minimum rate of 2.5% and maximum rate of 7.5%
that can be considered small rate. However, the capital asset ratios has increased after the crises but non-performing
loans has decreased and liquidity has looked up in the TBS.
The various
reasons for the intentions of foreign banks to incrementally participate in the
TBS as follows:
1. After
applied/to be applied reforms toward remedying the economical/social/political
structure, pessimistic expectation about the Turkey's future prevailed among
foreigners.
2. Positive
thinking about steady growth of economy, and about continuation of stability in
economic and political conditions.
3. Turkey received
a date for the accession into the European Union.
4. Turkey has a
higher population growth rate and will gradually have higher per-capita income;
consequently it will potentially be an emerging market for banking activities
as it was the case in many sectors.
5. In the frame of
globalized world, Turkey could not absent itself from foreign banks, because
Turkey has desired to take its part in global economy.
6. Since the
growth rate of European economies has been slowed down, and banks in the area
of EU has a lower profit margins, Turkey has been alluring for foreign banks,
by buying off either completely or partially.
In sum, last
improvements in the TBS also have a deep impact on the decision of foreign
investors. The consequences of re-structuring the system have increased its
self- trust. Besides, the improvement in
the capital structure of banks in the TBS and increase in their profits drew
the attention of foreign banks. Therefore, the attractiveness of Turkey grows
rapidly for foreign banks that want to diversify their investment options and
to raise their profitability. The crucial points of the discussion are:
(i) in
what degree foreign banks/capital will dominate in the TBS,
(ii) whether or not foreign banks will seriously
concern the opportunity of Turkish economy,
(iii) whether
or not they will supply loans to Small and Medium Enterprises, (SMEs).
Economists state contradictory opinions about issue in their speech and
columns.
As
for the question of why foreign bank participation rate is higher in developing
or emerging markets than developed countries. Some of the economists argue that
there is no need to confinement of foreign banks' involvement to the TBS
because of the conditions in perfect competitive market that allows the
dominance of foreign banks throughout the whole system, if there is a demand
for the existence of foreign banks in the system , it seems that the degree of
foreign banks' participation rate to the national banking system is
circumspect.
However,
a number of economists who advocate some restrictions on the dominance of
foreign banks in the system are not minority Dichotomy seems to be continuous.
When we take a look at other countries experiences, different approaches and
applications draw attention. For instance, despite of some differences among
countries, in the old western countries' banking system, experiencing a big
transition in last 25 years, dominance of foreign banks in their national
banking system has reached up to 90%. However, while Italy and France support
their banks to participate in other countries banking system, at the same time
they do not want similar involvements to occur in their own banking system. Mexico, which has 90% of foreign bank
dominance, has needed to design new regulations on foreign banks' activities
after seeing their adverse effects especially on loan supply. Big foreign banks
have densely inclined to increase in size via buying off Turkish banks, which
have a wider range of branch network. If Turkey keeps up with the international
standards and control foreign banks regarding these standards, both Turkish
economy and people can take advantages of it.
About The Author:
Suleyman Degirmen, Department of Economics, Mersin University, Ciftlik Koyu Campus, Turkey
This article is an excerpt from a research paper titled - The Effects of Foreign Bank Participation on the Turkish Banking System and Crisis, which is published under creative common license.
Download The Paper - LINK