Financial stability and the banking sector

ALİ BABACAN

The global financial crisis began with, but was not limited to, the emergence of problems in the financial sector, soon leading certain countries to the brink of bankruptcy. This crisis caused some important actors in the financial system to go bankrupt and left millions of people unemployed. 

The developments we have been experiencing lately have shown the significance of the financial sector not only in terms of national economies but also in terms of global economic relations. As a result of all these, and with the fall of the global economy’s potential growth rate, all related actors better understand the significance of maintaining economic stability.  

Our country is experienced in crises

Our country has considerable experience in this field. After paying a heavy price of more than one-third of our national income due to a serious crisis stemming from the banking sector in 2000 and 2001, necessary and correct steps were taken, even though they were difficult, to upgrade our financial system to a sustainable level. The banks that did not have strong financial structures were restructured through capital increases, merging and purchasing. A new law on banking was introduced; necessary regulations for bank cards and credit cards as well as the mortgaging system were made.

With the banking reform, the frameworks of regulating, supervising and auditing were reconstructed to reach international standards.

Major regulations were introduced to advance participatory banking, which can undertake a more supportive function compared to conventional banks, in terms of the entire economy in crisis. As a result of all these developments, our strong banking sector, together with our strong public fiscal balance, underwent a very successful test during the crisis, leading us to a distinctly positive position compared to other countries.

Trusted and appreciated  

Our banking sector today, with its 50 banks, constitutes more than 90 percent of our financial sector. Its total assets have reached a size of more than 1.8 trillion Turkish Liras, exceeding our economy.

Thanks to the discipline adopted by public finance, the need for loaning in the public sector has decreased. The road has been opened for our banks to allocate more resources to the real sector, and the ratio of credits to bank assets has increased from 23 percent in 2002 to more than 61 percent as of July 2014, totaling 1.1 trillion liras. Judging by indicators of financial soundness, with more than 16 percent capital adequacy and less than 3 percent bad debts, we have a trusted and appreciated banking sector.

That the banking sector has long been able to borrow externally with reasonable costs, and the high demand of foreign investors for bond issues, are concrete examples of this trust.
Likewise, the recent permit demand of international investors for banking and activities is another reflection of the positive perception of the sector’s future.

Increase in SME loans     
In order to carry forward these achievements and build trust in the banking field for the future, our government, primarily our Central Bank and the Banking Regulation and Supervision Agency (BDDK), all relevant institutions, are maintaining their intense and dedicated work. We have been implementing with success macro-prudential measures since 2011 to counter macro-financial risks and have been making arrangements for our banks on a micro scale.

To decrease consumer credit to a more reasonable and sustainable level, and to direct loans to production, exports and small- and medium-sized enterprises (SME), we took a series of macro prudential measures in October 2013, November 2013 and January 2014.

Data shows clearly that all these measures are yielding results. In fact, the annual increase in loans, which was 34.2 percent in March 2011, dropped to 18.1 percent as of Sept. 12, 2014.

Maintaining a healthy structure

One of the fundamental requirements of a healthy financial system is that the individuals benefiting from the system are guaranteed rights. At this point, we are continuing our intense efforts to protect the rights of our citizens, without bowing to populism, and to increase financial literacy in our country. We will continue taking the necessary measures and steps with determination.

Maintaining the healthy structure of our banking sector is important for elevating the welfare level of our country and reaching our targets of 2023. Our banking sector, cited as a major success story around the world, will be able to assume its role successfully in the sustainable growth and development of our country.

*Hürriyet Daily News staff have translated this abbreviated version of an article originally written in Turkish by Deputy Prime Minister Ali Babacan for daily Hürriyet.