TBY talks to Süleyman Aslan, CEO of Halkbank, on supporting SMEs, foreign investment, and regional expansion.

Süleyman Aslan
Süleyman Aslan was born in 1970, and graduated from the Middle East Technical University’s Faculty of Economics and Administrative Sciences. He began his career in 1992 at the Ziraat Bank School of Banking, and then worked as a Specialist in the Capital Markets Department at the same bank, and as an Assistant Manager of the Istanbul Investment Securities Branch, following which he became a Division Manager of the Bonds and Bills Department. He has been the General Manager and Board Member of Ziraat Asset Management, as well as the Head of the Foreign Exchange and Money Markets Department at Ziraat Bank. Aslan was the Deputy General Manager responsible for Treasury Management and International Banking between June 2005 and July 2011 and has been a Board Member and the General Manager of Halkbank since July 2011.

What will be the impact of the eurozone crisis on the Turkish financial sector?

During the year 2011, some of the eurozone countries have struggled with sovereign debt crises, which was something like a perfect storm. Turkey has close economic ties with Europe, especially Germany. Despite having close links with eurozone countries, Turkey has weathered the storm quite well, just like it did during the previous episode of global financial crisis in 2008. I believe, however, that the negative impact of the crisis will be observed in 2012, and the economy will experience a “soft landing." In this context, Turkey exceeded growth expectations in 2010 and 2011. In 2011, Turkey's economy grew by 8.3%, demonstrating that the country is capable of growing as strongly as China and will experience much better GDP growth than the BRIC countries' average going forward. The European Central Bank (ECB) and the US Federal Reserve provided a large amount of liquidity to the financial system aimed at improving market conditions and supporting confidence in wider economies. It is highly probable that extra liquidity in the Western financial system may improve the situation there and, also, have a positive impact on emerging markets in the form of fund inflows.

How effective were the 2001 banking reforms for state banks such as Halkbank?

In the aftermath of the 2001 financial crisis in Turkey, we established the best supervision system of its kind—the Banking Regulation and Supervision Agency (BRSA). Both the functions of regulation and supervision have been equally focused on by the BRSA over the last decade, and it has manifested itself through banking reform and restructuring. The state banks were particular victims of the financial crisis in 2001. They incurred heavy losses and were deprived of capital during this crisis. Post-crisis restructuring made these banks much more effective in terms of adherence to market practices. Previously, the state banks were subject to public law, and they now enjoy private legislation. Only after new regulations and a restructuring process could the state banks compete with their private peers. More competition in the financial system made it much more resilient. Additionally, there have also been some newly adopted regulations that required banks to collect much more capital and liquidity, abolishing bad lending practices at the same time. More prudent and conservative policies were also adopted by the BRSA to prevent currency mismatches in the financial system. The Basel Committee on Banking is currently updating its approach toward capital requirements. The BRSA has always been cautious in terms of capital, and this strategy paid off, especially during and after the global financial crisis.

Halkbank has a strong history of serving tradesmen, artisans, and SMEs. What trends can you identify with regards to business growth?

Halkbank was established in 1938 with the mission of providing services to SMEs, including artisans and craftsmen. We have focused on this segment for more than 70 years, and now the Halkbank brand is associated with SME businesses. The share of SME loans at Halkbank weighs in at 36%, whereas the industry average is 24%. The SME share has decreased, however, due to the substantial growth in overall lending activities in the last couple of years. Many of our SME customers have grown, and are now categorized as commercial or corporate enterprises. We continue to focus on the SME segment—99% of companies in Turkey are considered SMEs, and employment and exports are very much reliant on this segment. We are well positioned as an SME bank; we focus on growth and have an extensive geographic distribution network. Moreover, Halkbank is much better represented in rural areas, where conditions have improved significantly. There are good indicators that income distribution has also improved around the country. We have registered much higher growth due to our proximity to SMEs.

What new products does Halkbank offer to increase competition and efficiency?

Turkey suffers from a long-lasting current account deficit issue and also a scarcity of savings. We, as financial players, feel obliged to address these problems. Turkey is heavily dependent on energy imports, and that creates a huge bill that swells the deficit. In one way or another, we need to reduce our dependency on energy imports. We are marketing a loan product with favorable conditions for our customer base, which consequently reduces energy consumption and increases savings. In this context, we enjoy close collaboration with international financial institutions such as the European Investment Bank, World Bank, and French Development Agency. We receive a number of loan facilities from these institutions and utilize these funds in servicing our SME customer needs. We are now marketing a variety of loan products and services aimed at supporting energy efficient investment.

We believe green energy is also crucial for us and deserves support. Turkey enjoys a huge amount of sun, and it is logical that solar energy could well be a substitute for fossil fuel resources. We are doing our part in terms of energy efficiency and renewable energy, by introducing new concepts to the market segments we are involved with. Fortunately, we have sufficient funding available at the moment.

What is the current appetite for foreign investment in the Turkish banking sector?

Foreign investment participation in the Istanbul Stock Exchange (İMKB) comprises approximately 63%, and has been range-bound for years. When it comes to the banking sector, foreign appetite is much higher. Halkbank launched an IPO in 2007, with approximately 25% of the shares listed on the İMKB. Roughly 70% of the shares were allocated to foreign investors, and after the IPO, the foreign share of investors peaked at about 94% or 95%. As of today, the figure stands at 88%, demonstrating the robust foreign appetite. This is largely due to the low penetration level of the banking sector and the young age of the country, which makes it attractive for investors. Halkbank is one of the best in its class, performing exceptionally well over the course of the past few years. In 2009, we had a return on equity (ROE) of 32.5%, one of the highest figures throughout the world. In 2010 and 2011, we achieved an ROE of 30.5% and 25.4%, respectively, placing us substantially ahead of our peers, which is why foreign investors are happy to invest in Halkbank.

What are you expecting for 2012?

We are expecting at least 15% asset growth, 18% loan growth, and at least 10% earnings growth. We expect the Turkish economy to grow at about 4% with inflation of about 6%-7%. In this environment, I believe that our targets can be easily achieved.

What are your aspirations for the international banking sector?

We are striving to increase our international presence. We have a 30% share of Demir-Halk Bank, operating in the Netherlands, as well as an offshore banking unit in Bahrain that we hope to expand. Other opportunities may open up in the Gulf region, but more importantly we have acquired 98% of a bank in Skopje, Macedonia, which has 21 branches, and we are currently working on a merger with Ziraat Bank Skopje, which is expected to be completed in the second half of 2012. The Balkan region provides cultural and geographic proximity, and therefore we are planning to expand our operations in other parts of the Balkans; Skopje is just the beginning. We are seeking more opportunities in the region. We will be capitalizing on our strengths in the SME segment, and exporting this success abroad.