Strong loan growth in 2011 has given way to a more cautious start to 2012, though the regulators are willing to adjust monetary policy to ensure sustained economic growth.

Turkey's banks survived the global financial crisis in a robust manner, putting many of their OECD colleagues to shame. The resilience of the banks was very much the product of the economic crisis in 2000-2001, when many Turkish financial institutions were either taken over by the state, merged, or shut down to begin mending the internal economy. Over the decade since the crisis, the local industry has learned how to keep the bottom line keen, while foreign majors have moved in to scoop up low-lying fruit, much to their profit. From July 1, 2012, Basel II regulations will finally come into force, which may see the banks follow more selective lending practices. As it stands, lending policies have been tightly regulated by the Central Bank of the Republic of Turkey (CBRT), which has actively been using an unorthodox mix of low interest rates and tight reserve ratios over the past year, along with other subtle measures to balance the many complications the global economy is still working out.

As of end-2011, there were 47 licensed banks operating in Turkey. In terms of deposit banks, four of them were state-owned and 11 of them were in the private sector, while there were 16 majority foreign-owned deposit banks. Although the number of foreign-owned deposit banks fell by one over 2011, with the merger of Fortis and Türk Ekonomi Bankası (TEB) following the coming together of their respective foreign shareholders Fortis of Belgium and BNP Paribas, their numbers are set to rise again this year once Bank Audi of Lebanon begins operations. In October 2011, Bank Audi became the first institution to be awarded a rare banking license by the Banking Regulatory and Supervision Agency (BRSA) since the crisis of 2000-2001.

Turkey also boasts a further 12 development and investment banks, while having four so-called “participation" banks, which tend to align their lending and deposit strategies with their sharia-compliant cousins around the world. Turkey's top five banks account for 61% of all assets and 62% of all deposits, while if this is extended to the top 10 banks, the same figures show 87% of all assets and 91% of deposits, according to BRSA figures.


Total assets for the banking sector at the end of 1Q2012 came in at TL1,229 billion ($690 billion) according to the BRSA, only marginally higher than the result recorded at the start of the year. Total banking revenues stood at TL17.96 billion for end-2011, up 13% in annual terms, while the average net interest margin (NIM) was 4.14% in 1Q2012. Domestic deposits still provide a key source of funding, representing 56.7% of assets in 1Q2012, though this figure has been in decline over the past two years, with deposits coming in at 57.1% at end-2011, and 61.3% over 2010. Although bonds have begun to become favored by the banks for longer-term funding, especially the highly rated top-tier institutions, they still only represented 1.8% of the sector's balance sheet over 1Q2012 at TL22.6 billion ($12.7 billion), with over three-quarters of those denominated in Turkish lira.

The average capital adequacy ratio (CAR) was 16.6% for the sector in 1Q2012, dropping by 20 bps on the same figure for 4Q2011, and 142 bps down on the year-on-year figure. Non-performing loans (NPLs) for the sector as a whole have trended down significantly since the high-water mark recorded in 3Q2009 of 5.3%, with the rate falling to 2.8% at the end of 1Q2012. Following the sharp growth in loans recorded over 2011 (30%), 1Q2012 saw a more reserved 2% growth in q-o-q terms, reflecting the CBRT's desire to cool the economy and ready the banking sector for Basel II standards. The 2011 result for loan growth overshot the BRSA's target of 25%, and since June 2011 it has raised the provision requirements on consumer loans from 1% to 4% to bring growth under control. For 2012, the BRSA has targeted loan growth of a more modest 14%, and indications are that this target may well be undershot.

One of the primary measures that the regulators have used to keep loan growth under control has been through the management of regulatory reserve requirements (RRR), which began in June 2011. While the effective RRR rose to 10.6% from 3Q2011, at the end of 2Q2012 the Monetary Policy Committee (MPC) of the CBRT decided to reduce the overall RRR figure to the 7.5% to 8% region by adjusting the level of TL deposits that should be held in forex and gold, releasing some TL5.6 billion in liquidity, according to YF Securities. The slower growth in loans and more relaxed inflation outlook in June 2012 is thought to have influenced the MPC to adopt a less hawkish stance than it has taken over the previous 12 months. The year-on-year lending growth rate has seen a steady drop over the past two years. While the BRSA saw total retail loan growth at 30% and 29% in 2010 and 2011 respectively, its 1Q2012 estimate indicates a more sedate 24%. The same figures on the corporate side were 36% and 28% in 2010 and 2011 respectively, with its 1Q2012 estimates set at 21%. The only major growth area for loans was on the retail side under the credit card segment, with 1Q2012 showing y-o-y a rise of 30%, up on end-2011 growth of 26% and well above the 17% recorded over 2010. Housing mortgages showed a considerable decline in y-o-y growth, declining to 15% for 1Q2012, down on the 22% recorded in 2011, and the 34% for end-2010. It should be noted, however, that the mortgage market is still under development in Turkey, although the slowdown in loan growth does reflect the tightening policies adopted by the MPC since June 2011.


In terms of large-cap banks, the grand old dame of Turkish banking, İş Bank, continues to lead the sector. The bank boasts over 1,209 branches, and has nearly 25,000 employees. In 1Q2012 it reported total assets of TL162.58 billion, up 17% in y-o-y terms. Loans rose some 32% y-o-y to TL93.04 billion, though in q-o-q terms loan growth was a more muted 2%. The bank has a heavy presence in the corporate market, with loans of TL67 billion as opposed to the TL26 billion extended to the retail segment. The bank reported an NPL figure of 2.1% for the quarter, up slightly by 0.2% due to a more active collections policy. The bank's CAR was reported at 13.9% in 1Q2012, down slightly on the full-year figure for 2011 of 14.1%. The cumulative NIM in 1Q2012 was 3.9%, up on the end-2011 figure of 3.5%. Its return on average assets (ROAA) was at 1.7%, down from the 1.8% for full-year 2011, while the return on assets and equity (ROAE) was up slightly on the end-2011 figure (15.2%) in 1Q2012 at 15.3%. İş Bank retained its numerical leadership in loans for the private banking segment, and continues to have the largest deposit base at TL94.30 billion.

Garanti Bank is looking to keep its innovative edge in the banking sector, hoping to maintain strong growth in a market that seems to be dictating the beginnings of a slowdown. The group's two main shareholders are BBVA of Spain (25.01%) and Doğuş Group (24.23%). In 1Q2012, according to IFRS, it reported total assets of TL163.5 billion, up some 1% on the full-year 2011 consolidated figure of TL161.4 billion. Loans came in at TL93.11 billion, up slightly on the end-2011 figure of TL92.65 billion, and it has sought to position itself more in the lucrative retail end of the market. Garanti reported a slight deterioration in its NPLs over 1Q2012, at 2.4% versus the 2.3% seen over 2011, though this was lower than the sector average. The CAR came in at 15.7% for 1Q2012, slightly down on the 2011 figure of 15.8%, while the NIM for the bank disappointed slightly at 4.1% in terms of the end-2011 number of 4.7%. ROAA for the first quarter was 2.4%, while it reported a ROAE of 21%. Total deposits also dropped in 1Q2012 to TL92.6 billion, down from TL93.2 billion in 2011, with the TL side underperforming.

Akbank, a subsidiary of Turkish corporate giant Sabancı Holding, reported total assets of TL143.78 billion in 1Q2012, up slightly on the YE2011 figure of TL139.91 billion. Total loans were TL77.9 billion, up healthily from the end-2011 figure of TL74.4 billion. TL loans increased by 10.6% in q-o-q terms, reflecting a 50 bps market share gain and a more aggressive stance from the bank in the retail segment. The NPL ratio rose slightly to 2.7% in 1Q2012, from the 2.6% recorded over 2011, with the credit card and SME segments being the main causative factors in the rise. Akbank had a CAR of 16.3% in 1Q2012, with the NIM coming in at 3.4%, a decline on the YE2011 figure of 3.5%, reflecting an increasing cost of funds. Its ROAA and ROAE continued to decline in the first quarter of 2012, at 1.5% and 11.5% respectively, while its deposit base was bolstered to TL83.4 billion in 1Q2012, up from TL80.8 billion from end-2011. Overall, Akbank is seeing strong growth in credit card and bancassurance commissions, though cost of funds continues to represent a concern.

Yapı Kredi is considered the fourth largest bank in Turkey, recording assets of TL115.4 billion in 1Q2012, and loans worth TL69.5 billion. It reported deposits of TL64.2 billion according to BRSA standards over the same period. The bank is the preserve of Turkey's Koç Holding, with Unicredit owning a key minority stake that it is keen to retain due to the banking group's profitability. The bank's CAR fell 0.1% to 14.8% in 1Q2012 from the end-2011 number. Its NIM improved to 3.6% for the first quarter of the year, up a shade over the 3.5% seen in 2011. NPL ratios showed a small rise on the FY2011 total of 3%, reaching 3.2% in 1Q2012. As a result of regulation changes, Yapı Kredi reported a much reduced ROAA of 1.4%, down from YE2011 results of 2.2%, while the ROAE was also affected, declining to 13.1% in the first quarter as opposed to the 22.9% visited at end-2011. Loans were flat at TL69.5 billion over the first quarter, while deposits were slightly down over-the-quarter at TL64.2 billion. Yapı Kredi is considered one of the more sensitive of the large caps to market swings, especially with its reliance on short-term funding.

Halkbank is the only state-owned bank to be considered a part of the local large caps as a result of its 25% market float on the Istanbul Stock Exchange (ISE). According to BRSA standards, it reported asset growth of 3.7% q-o-q to TL94.5 billion, with total loans of TL56.7 billion, up 2.17% on FY2011. NPLs fell to 2.8% in 1Q2012 from the 2.9% at end-2011, although new NPLs excluding those hanging over from the 2001 financial crash remained flat at 2%. Halkbank reported a below-industry CAR of 14.5%, putting it still in a good place for the arrival of Basel II regulations. Its NIM rose slightly in cumulative annual terms over 1Q2012 to 5.1%, bettering the 4.8% seen over 2011. However, in q-o-q terms the NIM was dragged down from a high of 5.6%, indicating an increased cost of funds. It reported a return on equity (ROE) of 23.6% in the first quarter, and a return on assets (ROA) of 2.4%. Halkbank has a solid penetration of the SME market, with 37% of its lending base extended in that segment, while corporate customers make up another 26%, retail has a 27% share, and commercial and other combined come in at 9%.

Ziraat Bank, a state-owned concern, can rightfully be a part of the line up of Turkey's biggest banks, with a strong branch presence across the country. However, its status as a full state bank tends to insulate it from the larger market, despite having assets of TL81.48 billion according to BRSA standards in 1Q2012. Other banks of note to watch include VakıfBank, Finansbank, TEB, and Denizbank, which was acquired by Russia's Sberbank in 2012.


Turkey has four participation banks in the financial sector, which follow rules akin to those used internationally in the sharia-compliant sector. Of the four, Bank Asya and alBaraka are considered the leaders of the sector, with Kuveyt Türk challenging to break into the top flight, and Türkiye Finans also looking to bolster its branch presence.

Bank Asya reported TL17.87 billion in total assets in 1Q2012, up 3.9% in q-o-q terms on the TL17.19 billion at end-2011. Deposits also rose a healthy 6.1% over the quarter to TL13.16 billion, with some 35% having a maturity of over 1 year. Forex deposits showed a 23% rise over 1Q2012 to $3.04 billion, demonstrating a march to class by its risk-averse customers, while TL deposits actually declined by 1%. Its market presence in the participation sector was estimated by the bank at 34.8%. Its NPLs stayed flat over the quarter at 2.7%.

AlBaraka Bank, a subsidiary of the Bahraini banking group of the same name, reported flat figures in terms of assets for 1Q2012 at TL10.31 billion, down slightly on the TL10.46 billion recorded for end-2011 due to a fall in value of investments held to maturity. It had an NPL ratio of 2.31% for the quarter, and a CAR of 12.3%. The bank is looking to extend its funding base in the near future, as sukuk and murabaha syndication offerings become more available, but will likely stick close to its traditional support base in the corporate and SME sector, which made up 55% and 32% of total loans. Retail credits, at 13%, remain a lower priority for the bank.