TBY talks to Şakir Ercan Gül, President of the Savings Deposit Insurance Fund (SDIF), on how the finance sector in Turkey was well prepared for the global financial crisis.
TBY In what practical ways is Turkey’s Savings Deposit Insurance Fund (SDIF) making progress in promoting domestic and international financial stability?
ŞAKIR ERCAN GÜL We experienced a banking crisis in 2001 in which 20% of the banking sector failed in terms of assets as well as deposits. The cost of bank restructuring was financed by Treasury borrowings, in much the same way as countries around the world have been bailing out their own financial systems of late. These losses then have to be recovered by a resolution agency, and the SDIF became an independent agency with this goal in 2004. Prior to this, from 1999, it was under the Banking Regulation and Supervision Agency (BRSA). Parliament then gave the SDIF some additional powers to speed up the resolution process and increase the recovery rate, especially from the claims and non-performing assets of majority shareholders. The SDIF is mainly working on follow-up actions on majority shareholders, and this is facilitated by the powers given to us by Parliament, entitling us to follow up on claims that the Treasury bore because of the 2001 crisis.
Has the SDIF had to adopt a more ruthless attitude when resolving asset claims?
We have conflicts with debtors; they want to pay less and we want to get as much as we can to maximize our recovery. The conflict is always there and we constantly face these kinds of problems. However, we don’t require the bank owners to pay back all the losses of a failed bank and all the costs that were incurred because of the 2001 crisis. We have to be reasonable, and act from a reasonable legal base, and that means we recover what directly caused the losses; i.e. the credit they borrowed from a bank. The other issue is that the SDIF’s mandate was not granted just after the crisis in 2001. In 2004 the SDIF became an independent authority, and just before that the government gave us additional powers to resolve non-performing assets. Due to the aging of assets, some of them lost their recoverability. They didn’t have enough strength, so we were unable to receive as much income as we could have due to delays in taking action. Now we have the legal mandate and institutional capacity to take action immediately.
Were the lessons learned in 2001 the reason why the Turkish financial sector was stable during the recent crisis?
Absolutely, we are now seeing the fruits of our labor. We were affected minimally in comparison with the US and Europe. If we hadn’t taken precautions in 2001, we would have been affected far more severely.
The SDIF is dealing with the problems of the past in regards to its resolution activities. Is deposit insurance alone where the SDIF’s future activities lie?
After 2004, when we became independent from the BRSA, our mandate was focused on resolutions and insuring deposits. As you can see, our resolution activities are decreasing. As we sell off assets, we solve problems. Soon, we hope to finalize resolutions for two major ex-banks: Sümerbank and Etibank. After resolving the assets of these failed banks, our activities will be further reduced. However, after the 2001 crisis, we still continued our deposit insurance activities and we have improved greatly in this area. In 2009, for instance, we received the Deposit Insurer of the Year Award from the International Association of Deposit Insurers (IADI).
What is the current situation regarding the Birleşik Fon Bankası (BFB)?
This is the institution formerly called Bayındır Bank, under which we merged some of the failed banks in order to resolve those assets. Currently, this bank is handling leftover assets as well as the other liabilities that we have. Practically, BFB serves our resolution activities. For example, we cannot have the letters of credit of a failed bank on our SDIF books and we transferred those letters to BFB to deliver our obligations. We currently appoint the management, and they operate accordingly. At the end of the resolution activities of the BFB, its status will be assessed.
The Adabank tender had only one bidder, Bank Pozitif, owned by Israel’s Bank Hapoalim. What is your assessment of the tender process?
There were three banks seriously interested, including Standard Chartered and Bahrain’s BMI. Unfortunately, only Bank Hapoalim decided to bid and we were disappointed by this single bid. Deposit licenses are difficult to come by and are not being distributed by the BRSA. Adabank, as the owner of a license to operate a deposit bank, represents a good opportunity for a foreign bank to enter the market. For this reason, we are disappointed to have not seen more interest. For now, Adabank is the last bank to be sold; however, in the future BFB will also be looked at with a possible view to sell.
Coming back to deposit insurance, is the level of up to TL50,000 that you currently offer still warranted to ensure confidence in the banking system?
After the 2008 crisis most countries around the world increased their coverage; the US to $250,000 and the EU from a minimum of €20,000 to €50,000. At the end of 2010 every country had to make it a stable €100,000 all over Europe. However, the TL50,000 level of coverage is above the €20,000 that was the minimum requirement for EU regulators before the recent crisis. During the 2008 crisis we didn’t increase the level of coverage, and we haven’t seen any lack of confidence in the market as a result. The confidence of the public in the banking system is unwavering due to prudential regulation and the tight supervision of this sector.
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