TRADING NICHES

Turkey 2011 | FINANCE | B2B: FOREIGN BANKS

The potential for trade and project financing has led to the establishment of several branches of global financial institutions in Turkey, and they are taking advantage of the country's improving economic ties across the world.

Nezih Akalan
NEZIH AKALAN
Chief Representative
Doha Bank
Şebnem Türkay
ŞEBNEM TÜRKAY
General Manager
Habib Bank
Andreas Schröter
ANDREAS SCHRÖTER
General Manager
West LB

What are your bank's main activities in Turkey?

NEZİH AKALAN We inaugurated the Turkey Representative Office in December 2006. We are trying to generate more in the trade finance business for Doha Bank Qatar, so our main activity is letters of guarantee. By advising Turkish construction companies on their bid-bond letters of guarantee, we are helping them to increase their capacity to participate in tenders for Qatari projects. Also, once they are in Qatar for a project, they can get credit directly from Doha Bank rather than a Turkish bank. This is a huge advantage for Turkish companies because it means that only one bank will be involved in the guarantee transaction. This reduces their commission fees by at least half.

ANDREAS SCHRÖTER Today's main focus is to accompany and to finance Turkey's modernization process with a special focus on energy, infrastructure, diversified industries, and financial institutions. Based on the intensity of Turkish-German business relations we have supported German and Turkish companies in financing their projects and investments for some 20 years. In combining our regional capabilities with our global sector and distribution expertise, we are able to support the Turkish economy to finance local major projects abroad and the German economy in its endeavors to invest in Turkey either via direct investments and projects, or to support exports.

ŞEBNEM TÜRKAY We are a one-branch operation established in 1983 primarily for the purpose of promoting trade between Turkey and Pakistan. The idea behind setting up this branch was for Pakistan to have a representative office in Turkey so that the two countries could promote trade via a bank that could facilitate it. We are working with medium to large Turkish corporations that are not only trading with Pakistani firms, but also in other countries where Habib Bank has operations. We are present in 25 other countries, and are especially strong in Asia and Africa. These countries are usually difficult to operate in, so we think we have a niche market where we can add value for our clients. We have a commercial banking license in order to collect deposits, but because we are not a retail bank this activity is rather small. We mainly provide Turkish and foreign currency loans for trade financing purposes to local corporations, and these loans usually have a one-year tenor. We do short-term business and also provide letters of guarantee to contractors and letters of credit for the importation of goods and services from different countries where we are present. It is traditional trade finance banking for corporate clients.

How would you assess the trade and investment relationship between Turkey and your bank's home country?

NA The relationship between Turkey and Qatar is flourishing and developing quickly. Turkish construction companies, in particular, have a very strong presence in Qatar. Twenty of the top 100 construction companies in the world are Turkish, so this is an important sector for the country. TAV Construction is building the New Doha International Airport together with Taisei, a Japanese company. This is a $6 billion project. Tekfen is developing the $700 million North Road Project. The Islamic Museum and the Qatar National Convention Center were built by Baytur Construction. STFA Group is also involved in port construction. The major Turkish construction companies are in Qatar and they are performing well, which will bring new projects. There is also the potential for Qatar to invest in Turkish projects. Qatar just increased its LNG production to 77 million tons per annum, which yields a huge surplus in current account terms. It has a strong ability to invest not only domestically, but also internationally. In 2010 its outgoing FDI was $22 billion. Turkey needs to find ways of getting a share of these investments.

AS Turkey and Germany not only have strong ties historically—after the collapse of the Ottoman Empire and World War I, Germany supported Turkey on the military side—they also for a long time are very close trade and investment partners, dealing in large volumes. In terms of tourism, the south of Turkey is a major destination for Germans, which inspired Fraport—the operator of Frankfurt Airport—to step in and operate Antalya Airport. Last but not least there is a substantial number of Turkish people that have moved to Germany and established a large community and built successful businesses in Germany.

ŞT The trade relationship between Turkey and Pakistan is still very small, though it used to be much smaller back in 1983, around $50 million. It is now around $750 million. The share we have of that trade is around 20%, which is not bad considering there are many other banks locally that can operate in Pakistan.

What sectors in Turkey have the most potential to attract this FDI?

NA We see interest from Qatari and Gulf companies in Turkish real estate, such as land, hotels, and shopping malls. However, Turkey needs to develop new projects to attract investment. One project that I have suggested is a free industrial zone for Qatar.

Qatar wants to develop its non-oil and gas industries, but it often lacks land, by-industries, raw materials, and human capital. Turkey, on the other hand, has a large and diverse industrial base. We could develop special immigration and tax policies, as well as other special laws, so that Qatari companies could utilize this productive capacity for their own investments. If they have excess production, they can export or sell to Turkey. Both sides would benefit.

Turkey's sovereign credit rating has improved recently. What are the best indicators of the strength of the banking sector?

AS With a capital adequacy ratio of 19.3%, being the highest rate among major emerging market countries, the local banking system is very well capitalized and highly liquid. This is evidenced by the sector's loan/asset ratio of 47.1% and loan/deposit ratio of 80%. It has a widespread deposit base that actually increased by around 10% in 2009 and 2010 due to increased FX deposits by households. Similarly, the sector's total capital rose by 26% and it recorded $12.1 billion of net income, although we do not expect the continuation of such high income levels. The ratio of non-performing loans (NPLs) remained at manageable levels of 5.3% in December 2009 (0.9% after reserve allocation), implying an increase from 3.6% in 2007. In any case, the sector is not exposed to the international capital markets, as syndication and securitization borrowings account for less than 10% of total liabilities.

Are there any issues regarding regulations hindering trade between Turkey and Pakistan?

ŞT Pakistan is still a closed economy, and so the transfer of foreign currency is subject to permission from the State Bank of Pakistan, whereas in Turkey these issues have been dealt with and it is an open economy. Has this been stopping the countries from dealing with each other? I don't think so, but then of course it may have an effect in terms of arranging the tenor of transactions or finding the necessary funds. I think rather than the regulations it is the perception of Pakistan that has been a factor in slowing down trade between the two countries. Pakistan has been full of political ups and downs, and security has been an issue for some contractors who are working there, or on the trade side you need to do a lot of groundwork before finalizing a transaction. These factors have slowed down business, but Turkish business people have gone through that now and that way of business has been learned. There is also an increased effort at the governmental level to improve the trade and investment relations between the two countries. That's why I think there are better prospects going forward.