Turkey Commercial Banking Report Q3 2008

Over the last year, the crisis in the inter-bank market and the soaring prices of oil and other raw materials tended to obscure several other important trends. In most of the developing world (i.e. the vast majority of the countries whose banking industries are surveyed by BMI), lending has been growing quickly. In many emerging markets, inflationary pressures have been boosted by a rapid increase in credit. In a number of emerging markets, macro-economic imbalances are evident.

The figures on the tables above provide a snapshot of the banking sector in Turkey and the changes that have taken place within it over the last year. To place the figures in context, it may be useful to bear in mind certain aspects of the 59 countries whose banking sectors are currently surveyed by BMI. Across this sample, the median growth in assets in local currency terms was 21.3% (in Colombia), the median loan growth was 21.6% (in India) and the median growth in deposits was 17.9% (in Brazil).

On their own, the ratios of loans to deposits, assets, and GDP mean little; however, they can provide useful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is 92.3% (in Greece), the median loan/asset ratio is 56.0% (in Poland) and the median loan/GDP ratio was 63.9% in India.

From Q308 we have included a new section that examines the risks associated with each country's banking sector in a new way. We have essentially sought to ask to what extent the banking sector will likely need to source funding from banks in the rest of the world over the course of 2008. Given that the answer is not necessarily meaningful on its own, we have looked at other key issues such as the size and recent movement in the loan/deposit ratio, macro-economic developments and recent movements in financial markets.

In general, the first half of 2008 has been kind to fixed-income investors and money market participants in Central and Eastern Europe. Inter-bank lending rates have come down thanks to the actions of the European Central Bank and the Federal Reserve, among others. Benchmark bond yields have generally fallen in absolute terms and, in some cases, relative to yields in developed countries. This is in spite of the fact that in many of the countries in the region, the statistics from the banking sector are worrying given the economic imbalances that persist.

As in previous reports, we include a SWOT analysis for Turkey. The overall picture is one of a presently under-developed banking sector that is growing quickly within the context of a generally favourable economic environment. However, by comparison with their peers in many other countries whose banking sectors are surveyed by BMI, the Turkish banks appear to be fairly aggressive in recycling (growing) deposits as loans. The imbalances within the economy are such that Turkey and its banks are vulnerable to contagion in the event that a major financial crisis emerges in Central and Eastern Europe.

Since Q108 we have calculated on a consistent basis a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns; it does this by taking into account the size, growth potential and bancassurance potential of the banking sector as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realisation of potential returns. This reflects BMI's assessments of overall country risk, together with the regulatory and competitive environment.

Turkey's overall CBBER is 57.1. Within the limits to potential return, the banking market structure is significantly more favourable than the country structure with scores of 65.6 and 43.0, respectively. The same is true in relation to the risks to the realisation of potential return. The market risks have a combined score of 70.0, while the country risks have a combined score of just 50.5.