Once debt-ridden, Turkey's banking sector now constitutes a solid pillar to the Turkish economy. The 2001 economic crisis was precipitated by a fragile banking sector and non-performing banking loans, forcing a shake-up in the Turkish finance industry.
Despite the more recent global economic volatility, Turkish banks remain largely un-phased. The majority draw comfort from sound banking fundamentals, following years of banking reform and a string of mergers and acquisitions. Foreign entities have meanwhile looked for a piece of the action in Turkey.
The portion of banking assets owned by foreign entities testifies to the confidence that exists in Turkey as a banking investment destination, with foreign banks injecting an extra dose of competition into the market. That comes despite low business margins and tough competitors. As much as 46.3% of total banking sector assets are held by entities that are partially owned by foreign investors, while 8.1% of total banking assets are wholly owned by foreign investors according to Turkey's Banking Regulation and Supervision Agency (BRSA). This leaves 45.6% of total banking assets in the hands of domestic investors only.
Insiders meanwhile point to the massive expansion of banking assets but reduction in bank numbers over the last six years. The total asset size of the banking system increased from $117bn in 2001 when 61 banks operated in the market, to $133bn in 2002 with 54 banks to $357bn in 2006 with 47 banks according to the BRSA.
Tayfun Bayazit, Chief Executive Officer of KapiKredi Bank - Turkey's fourth largest privately-owned commercial bank by asset size - told OBG, "What we have seen in the past few years is that supervisory standards have improved substantially and risk regulations have improved significantly." He went on to say, "This is not only due to the rules and regulations brought in by the BRSA but also by international players that have expedited the process."
Foreign banks have streamed into the market over recent years. France's BNP Paribas bought a 42% stake of TEB for $217m in February 2005, followed by the 89% stake acquisition of Disbank by Belgium's Fortis for EUR 882m in July of that year. The 25.5% share sale of Garanti Bank to the US's General Electric Consumer Finance for $1.8bn also filled local headlines in December 2005.
Other big acquisitions include that of the National Bank of Greece, which bought a 46% stake of Finansbank for $2.7bn in April 2006. In May 2006, Belgium / French Dexia paid $2.4bn for a 75% stake in Denizbank, followed by the 100% takeover of Oyakbank by the Netherland's ING for $2.6bn in June 2007. Then in July, Saudi's NCB bought a 60% share of Turkey's Islamic lender, Turkiye Finans, for $1.08bn.
While private sector banks will look to increase their share of the banking pie in Turkey, few big-fish public banks are left for angling. Local and foreign banks have their eyes fixed on government heavyweight Halkbank for which a 25% initial public offering (IPO) was made in April 2006, with the postponement of a much-anticipated block sale. State owned Vakif Bank - which earned a massive US$1.28bn for its 25.18% IPO in 2005 - and Ziraat bank, are unlikely to be privatised in the near-term in view of their strategic importance to the government. Ziraat, for one, provides agricultural loan products to farmers.
"If Halkbank goes then it is possible the government will hang onto the other two," Tevfik Aksoy, director and chief economist at Deutsche Bank's Turkey office, told OBG. "The main period of foreign buying is over."
Some bankers expect greater consolidation of the sector. Omer Aras, CEO and chairman of Turkey's Finansbank, recently told the press that the period of acquisitions has almost ended in the Turkish banking sector and mergers would be the next trend. It would appear that excitement in the sector is not over yet.