ANOTHER WAY

Turkey 2013 | FINANCE | VIP INTERVIEW

TBY talks to V. Derya Gürerk, CEO of Türkiye Finans, on the role of participation banking, new products, and Turkey's growth prospects.

How would you characterize your current strategy and role in Turkey's financial sector?

We are really focusing more on the commercial, SME, and retail sectors as we want to maintain our leading position in the SME and commercial sectors. Türkiye Finans has a 1.5% market share in the commercial sector, and we would like build on this as well as maintain our strong market share in the SME sector. For that reason, we have been investing in a strategy of governance and infrastructure, which was behind the launch of our new retail products in October 2012. This is our main strategy for growth, and our main goal is to increase our market share from 1.5% to 1.8% by 2016. This means that whatever the banking sector's growth rate, Türkiye Finans has to grow 20% over that.

Why are SMEs so important to Türkiye Finans and how do you tailor your products and services to SMEs?

The raison d'être for participation banks is to support trade and production. We finance retail businesses via a different process to commercial banks. It is not simply enough to request a sum of money. In the participation banking system one has to tie that borrowing to a commodity or service and provide us with the invoice. The banking sector mainly supports production and trade. This is the reason for our existence, and participation banks have really advanced on this front.

“In order to issue a lease you need assets, and Türkiye Finans has spent time building up its assets."

What actions is Türkiye Finans taking to increase its share of the retail banking market?

We are launching a new credit card-driven product. It is a pre-credited card. It is not pre-paid, but a pre-credited installment card. The card will have a limit and an expiration date. We decide on the limit, expiration date, and the repayment schedule together with our customers. Upon utilization the customers will be billed throughout the installment period and at a rate agreed upon with the customer. This way, we know the customer spends that money on an invoice. This is a new product, and we have high hopes and hopefully we will be marketing it heavily toward the end of 2012. We are going to invest into our delivery channels, especially on mobile phones. We are now designing our budget for 2013 and are trying to specialize in alternative distribution channels. We are also investing heavily in opening new branches. In 2012 we are opening 38 and over 2013 we are going to open 26 branches. Türkiye Finans is also hiring at the moment. Over 2012 we will hire around 1,000 people. Basically, we believe we have reasonable range and number of products and now it is just the case of transmitting these to our customers.

What challenges do you think participation banks face in growing their market share in Turkey?

In the participation banking sector, there are challenges in terms of excess liquidity management. However, with the recent regulatory reforms and the lease certificate market growing, this will be resolved. In the future, when we look back we will see that these days were the turning point for the participation banking system in terms of greater excess liquidity management and improved asset management. This will be an important era, because the lease certificate gives us the chance to gain improved returns on our overnight facilities. We can funnel our customers' money into these overnight channels.

What factors were behind Türkiye Finans' recent decision to issue a lease certificate?

In order to issue a lease you need assets, and Türkiye Finans has spent time building up its assets. One is leasing and the other is real estate. Since 2011, we have been working heavily on our leasing assets. Now, we have about TL250 million worth of leasing assets, up from TL55 million in 2011. Also, we had very little real estate that we could convert to lease certificates. This is why we have been waiting, and now we can continue with the lease certificate program and go forward with this mandate. Right now, we are about to obtain the authority to give this mandate to one of the brokerage houses to issue a lira-denominated lease certificate—it will be the first of its kind. There are a couple of banks in the market trying to do this. A Turkish lira lease certificate is more important for us than the one denominated in a foreign currency, and to prosper you need a long-term local currency source in order to lend. This is why the deal is very important and pioneering for the market. However, we are about to obtain a mandate to issue a foreign currency lease certificate by the end of 2012. We believe we are the optimum size needed to perform such a transaction. If everything goes well internally and externally, we expect to close one or two deals by end-2012 or early 2013.

Will the recent issuance of Turkey's sovereign lease certificate spur similar lease certificate issuances among banks and corporates?

Before this issuance we didn't have the infrastructure or legislation. The government believes lease certificates are very important on many fronts. Firstly, they are lent at a much cheaper rate than what our credit rating says the country should be able to. Second, there was eight times more demand for them than the amount actually issued. Another positive thing is that now we have a benchmark. Türkiye Finans can add it to its portfolio. Now, the bank will be able to offer those assets to both institutional and retail investors.

How can Turkey ensure that its recent high growth rates remain sustainable?

First of all, we should give credit to the government. It must carry on with what it has been doing. The budget deficit is maybe not as aggressive as a year ago, but certainly not as easy as in previous decades. Despite the election, the government is giving the signal that it will be tough on controlling the budget. However, we need to work on inflation, as that will certainly reduce interest rates. I think inflation is in the center of attention for the authorities in charge of the economy. The bottom line is that we claim Turkey should grow 5% annually. At the moment, Turkey's growth rate is 3%. In a growing economy there are different sectors growing at different paces. Take banking, for example. This sector is growing at a rate of 15%, while the economy is growing 3%. I believe we must focus on those faster-growing sectors and improve the strength of the country. The government has been paying attention and is voicing its goals and targets for the country, especially in R&D. I support this initiative and believe that Turkey can easily become an R&D center in the region.

What is your vision for Türkiye Finans over the next decade?

We are aiming to be a mid-tier bank in a few years, and are making excellent progress toward achieving that status. Türkiye Finans has strategies in five-year blocks, as they are usually environment driven. We want to be a pioneer in participation banking, not in terms of asset size, but certainly in terms of service quality and customer experience. Over the next 10 years we are certainly on track to become a second-tier bank.

© The Business Year - November 2012