2014 to be toughest year for Turkish banks: Garanti CEO

ISTANBUL

People withdraw money from ATM machines in Istanbul. REUTERS photo

A tough year lies ahead for Turkish lenders because of the challenges expected to erupt with the U.S. Fed’s plan to taper its stimulus plan and macroeconomic conditions in the country, the CEO of Garanti Bank has said.

“I think 2014 will be hardest of the past 10 years for banking sector,” Garanti CEO Ergun Özen has told Anadolu Agency in a wide-ranging interview yesterday.

Özen said there were two main structural worries ahead of the economy: repercussions from the uncertainty arising from the U.S. Federal Reserve’s monetary exit strategy and reflections of measures taken for balancing growth components into banks’ balance sheets.

Regarding the potential impacts of Fed’s decision, Özen said he expected its impact to be limited, dependent on the U.S. Central Bank’s success in routing interest rates expectations through forward guidance strategy.

He said interest rates were already in compliance with inflation forecasts thanks to the Turkish Central Bank’s policies, which have prioritized inflation targets.

“In spite of this, the risk of a slump in profitability may emerge if the upward trend in interest rates continues,” he warned, however.

Praising the Central Bank for acting with the consciousness of being a periphery country that needs to limit credit growth with cautious macro policies in order to maintain capital control, Özen also defended the bank’s policies, which are accused of being too complicated.

“I think criticizing the Central Bank’s policies for not being understandable will be taking the easy way out,” he said.

Dynamic policies ‘work’

He argued the bank had to pull away from its traditional central banking approach in order to mitigate the negative consequences on Turkey of the untraditional policies that advanced economies’ central banks adopted in post-crisis period.

“It turned into a more dynamic Central Bank thanks to its flexible and creative practices,” he said, applauding the bank for adding financial stability to the reaction function.

“The bank’s policies will function to decrease the foreign exchange and interest rate volatility in 2014,” he said.

He also listed his suggestions for lenders in Turkey, urging them “to stop complaining and making necessary arrangement according to changing conditions.”

“The banking sector should be able to read the messages that the economy management gives or should try to minimize the time pass for the conjectural or structural measures taken to be reflected in general economy, instead of complaining ‘the regulations are bringing extra burden to us,’” he said.

Turkey’s banking watchdog BDDK’s plans of introducing tighter regulations on credit card payments and private consumer loans will not impact the credit card numbers, Özen also said, saying the numbers will keep rising as financial inclusions continue.