Turkey Commercial Banking Report Q2 2008

In March 2008, we updated all data for the 59 countries surveyed with official figures, sourced from central banks and regulators. In most cases, we were able to find data that pertained to the end of 2007: in almost all other cases, the data pertains to September 30 2007. As a result, the insights that we derive on particular countries are based on consistently sourced information that is far more current than it had been previously.

Although we gather data for countries such as the US, Japan, Australia and the eurozone, the vast majority of the 59 countries whose banking industries we survey are, or are generally seen as being, emerging markets. For all the widely publicised problems of large banks in developed countries, in the wake of the subprime banking crisis in the US, 2007 was an extremely good year for the banking sectors of the emerging markets. In local currency terms, the median growth in assets was 21% (in Brazil). The median rates of growth in loans to non-bank customers and in deposits were 22% (in India) and 18% (in Morocco). In some countries - and not just those enjoying oil booms - the figures were spectacular. In Ukraine, for instance, assets and deposits rose by 76% and 62% respectively. Loans grew by more than one-third in Bulgaria, Estonia, Latvia, Lithuania, Romania, Russia, Serbia, Slovenia, Peru, Bahrain, Iran and Nigeria. Deposits also rose by more than one-third in most of these countries.

In absolute terms, Turkey's banking sector enjoyed reasonable growth through the year to 30 November 2007. In local currency terms, total assets, total loans and total deposits increased by 12%, 25% and 26% respectively. The loan/deposit, loan/asset and loan/GDP ratios all rose.

However, relative to other countries surveyed by BMI, these achievements are not so impressive. Of the 59 countries surveyed, Turkey ranks 46th in terms of local currency asset growth, 27th in terms of local currency loan growth and 45th in terms of local currency deposit growth. All three of the ratios are rising from low levels. Turkey's rankings in terms of its loan/deposit, loan/asset and loan/GDP ratios are 48th, 48th and 43rd respectively. In a country with per capita GDP of US$6,668, deposits per capita are not particularly high at US$3,761.

In Q108, we envisaged that total assets, total loans and total deposits would rise by 22%, 28% and 25% annually through the 2007-2012 forecast period. Now, and using an improved forecasting method, we are looking for growth rates of 12%, 16% and 11% respectively.

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 CBBER is 56.4. In the context of Central and Eastern Europe (CEE), this means it is no more than a moderately attractive country; the CBBERs are higher in Russia, Poland, Romania, Greece and Hungary. Turkey's CBBER is held back by the past volatility of the overall economy, and its relatively low long-term risk ratings. The elements of the CBBER that pertain the commercial banking sector per se are almost the same as those of Poland, Romania and Greece. The Turkish commercial banking sector is, by global standards, not very large. It is also fragmented: it is not yet clear that the various indigenous corporate groups who own most of the sector will encourage consolidation and a striving for economies of scale. Nevertheless, it would be fair to say that the commercial banking sector has made good progress since the financial crises of six-to-seven years ago.