TBY talks to Cengiz Üçbaşaran, General Manager of Garanti Factoring, on the factoring industry, the success of Garanti Factoring, and the company’s future.
TBY What is the global state of the factoring industry, and how has it responded to the global economic crisis?
CENGİZ ÜÇBAŞARAN The global factoring industry, in stark contrast to the banking industry, has managed to pass through the crisis years very successfully. I believe that the basic elements of factoring—invoices and trade receivables—have been strong, and will remain so. The crisis presented an opportunity for factoring companies as businesses that were unable to obtain credit financing from banks found solutions amongst our products. Businesses can raise funds through factoring more easily by using their short-term receivables when it has been more difficult to access credit finance through banks. Factoring is a traditional way of financing for businesses, and more and more companies are going back to basics. The crisis offered an opportunity for a reshuffling of the finance industry, and factoring has benefitted greatly.
How would you assess the factoring industry in Turkey?
The factoring industry is relatively young in Turkey, having only been established around 20 years ago. We have seen a significant acceleration in growth in the last 10 years or so. In the last five years, the sector began to be regulated by the banking watchdog [the Banking Regulation and Supervision Agency], which has taken the industry to the next level. There are now strict requirements for reporting and auditing as well as client selection and control. This is positively affecting the quality of factoring companies and helping to improve the image of the industry, and therefore attract more clients to our services. Factoring industry turnover reached almost $50 billion in 2010. This figure is attributable to the aggregate volume of the 60+ members of the National Factoring Association of Turkey, which account for nearly 95% of the total factoring market here. The biggest growth continues to be driven from the domestic factoring business with a transaction volume of $44 billion, representing roughly 90% of industry volume. This is mainly due to a pick-up in economic activity and high growth rate in the country’s GDP.
How much importance does the government attach to factoring as a driver of the country’s economy?
Factoring is an important area of finance, and we are becoming a driver of trade and industry. The development of SMEs has been highlighted by the government as vital to the future growth of the economy. Our services are tailored to SMEs, and as we lend them support we are boosting the economy and helping to drive down the unemployment rate.
What role does factoring play in trade?
We provide working capital solutions for companies. Every company has unique needs. When a business needs to extend its payment terms, or runs into difficulty with its main buyers, our products can offer the solution. Our trade finance solutions work in the name of the supply chain, whether it be domestic or international. It is common that large buyers have dominance over payment terms. Small companies may have less bargaining power and be unable to negotiate more favorable terms leading to a probable financial squeeze. We can support them with financing solutions based on their receivables. We assist importers by helping them make earlier payments. We also offer guarantees to foreign buyers of Turkish products to eliminate the chance of back outs based on trust issues.
We can also help Turkish exporters who meet new buyers at international trade fairs from whom they receive orders for their products and they doubt their creditworthiness or ability to meet their payment obligations. We provide credit protection for exporters and their receivables by obtaining guarantee services from our international counterparties, who cover the buyer’s risk in their local market and arrange financing internally if needed. Our large range of services has supported trade admirably, and we are proud to support the country’s SMEs.
Garanti Factoring is a pioneer of the factoring industry in Turkey. What differentiates Garanti from its competitors?
Garanti Factoring is the oldest factoring company from the first years of the industry in Turkey. Garanti already has a strong brand and is fully committed to the industry, with services available across the country, using Garanti Bank’s vast local distribution channels through an extensive branch network. However, the industry is still in its initial stages of development, and so the number of clients we have as an industry can be doubled every year for the next 5 to 10 years and still not be at a level seen in countries where factoring is more developed.
What can we expect from your 2010 financials?
In 2010, there has been significant growth in Garanti Factoring’s customer base and increase in market penetration that have been positively reflected in the company’s performance. Total factoring turnover for 2010 reached $10 billion.
Turnover is seeing strong growth as larger corporates are entering the industry as clients. Our client numbers and the amount of financing we provide are going to grow at a rate of at least 25% this year. This is a figure seen as a target in the banking industry, and a figure the government sees as tolerable, so as not to cause inflation.
A lot has changed since the early days of Garanti Factoring. What is next for the company?
Garanti Factoring maintains its ongoing support to the real sector through its wide product suite and financial solutions to its customers, offering cash flow management through trade finance, secure sales through the credit protection of receivables, supply-chain finance both for domestic and international business, export and import products, as well as commercial collection management. With our unique innovative approach in the sector, Garanti Factoring aims to continue pioneering the offering of new initiatives in customer-driven products and solutions and making a change in the sector. The SME market is our top priority, and Garanti Factoring has successfully achieved its regional expansion of a strong sales force nationwide. Through close cooperation and synergies with the parent bank, Garanti Factoring capitalizes on Garanti Bank’s commercial banking expertise and client history. Garanti Factoring is the leading import factoring company in Turkey. We work hand-in-hand with Garanti Bank to provide our services wherever they are needed. Garanti Bank can also provide us with referrals when they identify suitable clients from its portfolio. This helps us create new leads in the market.
Which areas of Turkey do you see business developing in?
After the removal of the visa requirement between Turkey and Syria, Turkish cities close to the border displayed an immediate desire to trade. I see great growth potential in that area, as well as in cities along the Iraqi border. The Ankara region is also developing industrially, and Konya and Bursa are improving their already strong manufacturing industries. As well as its prominence in the tourism industry, Antalya is also showing signs of industrial growth potential. Behind these leaders, cities like Şanlıurfa and Adana are also starting to show potential.
What other developments in the finance sector will bring benefits to the factoring industry?
Basel III will create a situation in which the banks will rate companies. This is not a requirement for factoring companies and this offers us a window of opportunity. Factoring provides low-risk financing. I think more and more companies will adopt a “back to basics” approach. We are also trying to create harmonization on the EU level. The EU Federation for the Factoring and Commercial Finance Industry, an association of national factoring associations, has been established to conduct lobbying activities in Brussels. Lawmakers will increasingly hear the needs of the industry. Banking is far ahead in terms of regulation, factoring just needs a little more time.
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