CALMER WATERS

ith the volatility that wreaked havoc on the Turkish economy in 2018 dampened, the banking sector began picking up the pieces of last year’s financial woes in relative calm. This effort has been led by state-run banks and guided by policy changes enacted by a new guard at the central bank and an increasingly decisive regulatory regime.

Chief among the knock-on effects of the lira’s volatility is a growing pile of non-performing loans (NPLs), whose ratio has climbed above 6%. These loans—primarily corporate debt belonging to companies in the energy and construction sectors—are denominated in hard currency and quickly soured when the value of these companies’ lira receivables nearly halved last year. Underway are several plans to deal with the NPLs, including efforts to internally restructure the loans, the packaging and sale of NPLs to outside buyers, and a state-led takeover of construction projects.

At the end of July, weeks after his appointment as governor of the central bank, Murat Uysal cut the bank’s key interest rate by 4.25%, setting in motion a plan to further drive down interest rates. The timing of the bank’s initial rate cut—at a moment of global central bank rate cutting— offset a potential run on the lira as global investors turned to emerging market currencies for returns, thus propping up the lira.

Credit has indeed begun to flow more freely

Wto corporates and consumers alike. Three stateowned banks—Ziraat Bankası, Halkbank, and VakıfBank—have lent money at a rate considerably higher than their privately owned counterparts, even before the July drop in interest rates. To further encourage privately-owned banks to follow suit, the central bank in August decided that banks with higher loan growth can hold lower their reserves—in effect boosting the profits of banks willing to lend.

All these moves to right the economy are against the backdrop of an increasingly foreign banking sector—eight of the 20-largest banks in Turkey are foreign owned, and in the biggest transaction throughout the economy in 2019, UAE-based Emirates NBD acquired Denizbank for USD2.8 billion from Russian Sberbank. The International Commercial Bank of China—the largest bank in the world—which operates in Turkey through a subsidiary, coordinated the Turkey Wealth Fund’s first foreign loan and has been increasingly lending to local banks and funding large-scale infrastructure projects as part of China’s Belt and Road Initiative.

In our interviews with players from across the sector—foreign and domestic commercial banks, participation banks, investors, and institutions—we felt a sense that, while the recent volatility has certainly dented confidence, the financial sector was capitalized and prepared enough to weather the storm. ✖

Hüseyin Aydın

CHAIRMAN OF THE BOARD, THE BANKS ASSOCIATION OF TURKEY

Can you outline the goals of your protocol with Turkish Exporters’ Assembly (TİM) in support of Turkish exporters, as well as the details of the bank’s involvement?

According to this protocol, Turk Eximbank raised TRY256 million in funding from TİM through a three-year, privately placed bond issuance. Turk Eximbank has always provided TRY credits to Turkish exporters at below-market levels. Exporters can qualify for these loans if certain conditions are met. However, amount wise, TRY credits are limited by the bank’s shareholder equity. Currently, Turk Eximbank’s shareholders’ equity is TRY8.5 billion, of which 84% is in the form of paid-up capital. As stated in 11th Development Plan of Turkey, Turk Eximbank’s equity will be increased by TRY10 billion during the plan period (2019-2023) as the bank’s support increases to 29% of Turkish exports. Turk Eximbank is keen to diversify its lira sources by borrowing from qualified investors in Turkey. Thanks to the funds received from TİM, a new lira credit source has been put into service.

What sectors of the economy has Turk Eximbank identified for growth, and how is the bank working to expand credit to those sectors?

In line with the government’s strategic objectives, in 1H2019, we implemented a new financial scheme in parallel with the advanced, productive, indigenous industry (İVME) financial package. In this facility, all companies exporting high-technology products are eligible to benefit from more attractive rates and conditions. Turk Eximbank will focus more on the sectors specified in the Ministry of Trade’s export master plan. The sectors prioritized in this plan include machinery, automotive, electric and electronics, chemical, and food.

Another role of Turk Eximbank is to develop new markets for exports. Which markets is Turk Eximbank currently focused on developing and why?

Turk Eximbank works closely with the Ministry of Foreign Affairs, the Ministry of Trade, and the Ministry of Treasury and Finance to determine the target markets in its programs. These institutions have focused much of their efforts on building economic and diplomatic relations with Africa. As a result, as end-2018, Turkish exports to the continent increased by more than 40% in the last 10 years to USD14.5 billion. Turk Eximbank also takes into account the requirements of sustainable lending practices to benefit recipient countries. In this manner, we provided a variety of financing opportunities for large-scale projects undertaken by Turkish contractors in the last five years, especially in the sub-Saharan Africa region, which is considered a strategic market because of its potential. Turk Eximbank is also focused on growing its operations in other regions outside Africa such as Middle East and North Africa, the Balkans, and Central Asia.

Over the next 12 months, what are Turk Eximbank’s most important objectives?

As in the case of the export credit agencies of developed countries, the bank will place greater emphasis on medium- and long-term loans, export credit insurance, and guarantee operations. Under international loans program, we aim to expand the geographical distribution of loan agreements to be signed with eligible foreign banks for the purpose of providing financing to the foreign buyers willing to import goods from Turkey on deferred payment terms. Within this context, we plan to sign revolving based loan agreements with foreign banks located in MENA, Eurasia, and the Balkans. In addition, Turk Eximbank will continue to apply favorable foreign exchange interest rates to finance the export of capital goods. Furthermore, the bank places the utmost importance on developing international partnerships with other export credit agencies, international financial institutions, and multinational development banks through agreements in various forms in order to enable competitive financing opportunities. In this framework, through its credit, insurance, and guarantees, the bank aims to finance 27% of Turkey’s exports via USD48.4 billion worth of support. This financing support consists of USD29.4 billion in loans and USD19 billion in export credit insurance and guarantees. ✖

Aims to finance of Turkey’s exports with USD48.4B worth of support