Turkey's banks seem to be riding out the global financial crisis having emerged from a more localised downturn eight years ago leaner and better equipped to deal with the present worldwide recession.
Overall, Turkey's economy is expected to have a difficult time in 2009, before returning to moderate growth the following year. The IMF is forecasting a contraction of 5.1% while ratings agency Moody's is predicting at least 4% negative growth this year.
However, the banking sector that emerged from the major financial crisis in 2001 is coping well, producing figures that would be the envy of financial institutions of many larger economies.
It was not always so. The structural weakness of the Turkish banking sector was the main factor behind the economic meltdown that swept Turkey in late 2000 and early 2001. Overnight, interest rates briefly hit 6200% and the lira lost 50% of its value against the US dollar in a single day after it was revealed that the private banking sector had liabilities of up to $40bn it could not cover. Added to this were the liabilities of state-owned lenders, with the total cost of bailing out the banking sector ultimately reaching $53bn, according to Turkey's Banking Regulation and Supervision Agency (BRSA).
In the wake of that collapse, there was a period of consolidation in the sector, with the state taking over 20 private banks, some of which were merged and privatised and others that were closed completely. By 2003, the number of banks operating in Turkey fell to around 50, down from the 81 when the crisis broke.
New monitoring, capital adequacy and regulatory provisions were put in place by the government and the Central Bank, the benefits of which are being seen in the present economic climate.
According to Tevfik Bilgin, the general manager of the BRSA, Turkey's banks are well placed to weather the economic crisis, with limited exposure to toxic assets due to tight regulations, high levels of capitalisation and some of the strongest loan-to-deposit ratios in the world.
"Turkish banks' capital adequacy ratios are now at 18.5%, and there is no bank with a ratio below 13%," Bilgin told a conference in the western city of Bursa on April 29.
While there could be a jump in the numbers of non-performing loans, this would not pose a threat to the banking system, he said.
Indeed, there has been an increase in the levels of non-performing loans (NPLs), rising from 3.8% of total portfolios at the end of last year to 4.4% as of mid-April, and non-performing credit card debt climbing from 6.5% to 8.5% over the same period. However, Bilgin said that even if NPL rates rose to 19%, the capital adequacy ratios of banks would still be 8%.
Somewhat more cautious is Ersin Özince, the managing director of Ýsbankasi, one of Turkey's largest private lenders. Though he said Turkey's banks were far stronger than in 2001, he felt that the worst of the current crisis may not have been felt yet.
"There is a dramatic increase in non-performing loans," he said in an interview with local media on April 23. "It is not only the problems of the ones that are unable to pay. Banks that cannot receive their money back will face tough times as they cannot keep deposits, either. We hope that our banks will have enough power to overcome the problem."
To date, they have done so. According to the BRSA, banking industry profits rose 38% to $2bn in the first two months of the year, while total assets of the sector reached $457bn by the end of 2008, a year-on-year increase of 26%.
Stock exchange regulations require Turkey's banks to declare their first-quarter earnings by May 15, though Bilgin has said profit margins will continue to widen.
Given the generally strong performance of Turkey's banks, it is not surprising that many of the leading players in the sector featured on the list of the top-2000 firms in Forbes magazine's "Global High Performers", issued in mid-April.
Of the 13 Turkish companies featured on the list, five were banks, with Isbankasi the best local performer, ranked at 331 with a market value of $5.31bn. Other local banks to make the list were Akbank, Garanti Bank, Halkbank and Vakifbank, all of which were in the top-850 firms on the list.
Though the Turkish economy is now is contracting, the smaller and better-regulated banking sector is still well in the black. Having learnt from past experiences, it is set to be one of the healthier performers in the country this year.