The Rise and rise of the Turkish Banks

Simon Cox, McGuireWoods

As the pleasure cruiser gently meandered down the Bosphorus one barmy evening earlier this summer, a Turkish government official was asked “how will Istanbul solve its traffic problem if it wins the 2020 Olympic Games?” [Turkey is one of the three Bid cities along with Madrid and Tokyo.  The winner is expected to be announced in September 2013].  “We will have seven years to sort it out”, replied the official barely pausing to give his answer.  Such is the “can do attitude” which has pervaded Turkey in the last decade and seen it rise to become a thriving G20 player on the fringe of Europe, while providing a stepping stone to Asia and a bridgehead to the Middle East and North Africa.  Against this background, however, an uncertain cloud now hangs over Taksim Square and other parts of the country.  The recent disturbances around Gezi Park on the edge of Taksim Square in Istanbul have taken some of the shine off the achievements of the Prime Minister and the country, and people are starting to question where this will end and what direction Turkey will take.

“2001 – a Banking Odyssey”
The Turkish banking sector has recovered dramatically since several of the local banks were effectively nationalised by the Turkish BRSA (the Banking and Regulatory Supervision Authority) and restructured in 2001.  Turkey avoided the full impact of the 2007/8 banking crisis as its banks have undergone a fundamental restructure post 2001: the residential mortgage lending industry in Turkey was still nascent and exotic banking products even rarer.  The international banks, which had invested in the Turkish financial sector during the post 2001 – 2007 inward investment boom, were retrenching in their home markets leaving the field open for the local banks to operate relatively unchallenged.

“Sultans of Swing”
After years of mainly ignoring Islamic finance techniques and products partly as a consequence of it being a secular Islamic state (as required by its constitution), Turkey has begun to dabble in certain of the Islamic Finance Products.  As various banks from the Middle East are starting to look at Turkey as a place to do business, several new banking licences have been issued recently and banks from Qatar and Lebanon have made local acquisitions in the past year.

Banking delight
Turkish Banks, March 2012

 

 

 

 

 

 

 

 

 

* Majority state-owned or state controlled
Source: Banks Association of Turkey

All aboard the Infrastructure express
Despite the current global economic crisis, Turkey is still in comparative growth mode (although GDP growth rates have plummeted from circa 8% per annum to a more modest

2 – 3% last year).  The Government, at least pre the Taksim Square crisis, is keen to pursue a visionary infrastructure development plan with landmark projects such as the new Istanbul Airport (aiming to become a regional hub with up to six runways), the new motorways and bridges projects together with a much derided mega canal project linking the Black Sea to the Mediterranean and avoiding the congestion in the Bosphorus.  These projects will require substantial bank finance with the local banks well placed to take leading mandate roles.  The recent drop in the local currency (Turkish lira) only serves to strengthen their local position.

As regards international expansion, local/state-owned banks are now looking to consolidate or even open representative offices or branches abroad.  Recent expansion has tended to focus on the “Stans” (eg Kazakhstan) and the republic’s contiguous to Turkey (Azerbaijan is a firm favourite) and the former Yugoslav Republic and Bulgaria especially.  However now ambitions are being raised and global financial centres such as London are being considered for branch openings.

Closer to home the government is promoting a new international financial business district on a 70 hectare site on the Asian side of Istanbul, a sort of “Canary Wharf on the Bosphorus” as one person described it.  The state-owned banks are relocating to the new financial district from Ankara and others with close ties to the political leadership are also moving there. What the international banks make of it remains to be seen although a new airport has been opened nearby and hotels are opening up in the area thus saving the long commute back to the European side of the city.

The New Sultans
As the modern Turkish Republic glides towards its 90th anniversary celebrations later this year the inheritors of the legacy of the founder of modern Turkey can look back on a job well done.
With the potential of the Olympics to host in 2020 and the centenary year of the foundation of modern Turkey in 2023 the next decade should prove to be a Turkish Delight and the local banks are well placed to capitalise on this growth.

Simon Cox is a corporate lawyer with international law firm, McGuireWoods.
He can be contacted at [email protected] and on 020 7632 1721.