TBY talks to Süleyman Aslan, CEO of Halkbank, on the role of SMEs and foreign lenders, achieving a soft landing, and strategies for 2013.

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.

Given the importance of SMEs in Turkey's economy, to what extent is access to financing a constraint for these businesses?

It is not the major constraint in the Turkish economy. I believe there is still room for SME loans to grow further. Looking at the number of companies in Turkey, we can see that around 95% are SMEs. Some of these are relatively small, but in terms of financing demand, the share of SME loans in total loans remains limited; it is around 25%. Considering that around 65% of total sales in the economy are made by SMEs, I believe they deserve a larger share in overall loans. They have made significant progress toward accessing further loan opportunities over the last few years. We clearly need to put more effort into promoting the increased importance of their financials and balance sheets and help them to become companies with more professional management understanding rather than family-run companies. The efforts of SMEs and the risk appetite of the banks in the SME segment has provided advantages to SMEs, which can now obtain more affordable loans than in the past. At the same time, SMEs have become more familiar with banks' risk assessment and credit rating methodologies. This means that SMEs are now achieving more competitive pricing, almost at the same level as large enterprises. When it comes to relatively smaller enterprises, the Turkish treasury ensures loan availability for artisans and craftsmen. Halkbank and the treasury have managed subsidy schemes for many years. Up to 50% of loan interest can be subsidized by the treasury, and Halkbank is the sole provider of this subsidy scheme. As of 2012, roughly 260,000 artisans and craftsmen have benefited from this scheme. Over the past 10 years, some TL24 billion has been loaned to those small enterprises through this scheme. Although the share of SMEs in total loans is still not at a satisfactory level, financing is no longer the main challenge for SMEs.

How do you think the increased involvement of foreign lenders will change the Turkish banking sector?

There are 49 banks operating in Turkey. However, 10 years ago that figure was 80, but after the financial crisis of 2001, most of those banks either closed down or merged with other banks. Turkey is a very big country in terms of population dynamics and economic growth prospects. Given the size of the economy and the growth potential, Turkey doesn't have a large number of banks. In that respect, the inflow of foreign financial players will definitely increase the very competitive structure of the Turkish financial system to another level. That will benefit Turkish society overall, as well as the Turkish financial system, because it will make financing more available and affordable for wider segments of society. Turkey will also grow faster thanks to the greater participation of financial institutions. This will also no doubt bring new products to customers.

Turkey has an economic history that alternates between high growth and stagnation. GDP growth has seen a sharp drop from over 8% in 2012 to around 3% in 2013. The government says it will level out at 5%. Why is this different from previous cases?

In past crises, Turkey had not been able to achieve a soft landing. It is easy to achieve 7% or 8% growth if you have a large population with strong domestic demand. However, to contain this growth, to prevent overheating, and to bring about a soft landing is much more important than being able to achieve a year or two of super-high growth. For the first time, in 2012, Turkey achieved a soft landing; 2.2% is not a bad figure. After more than 8%, sure it is a huge drop, but Turkey is still growing. Also, the Turkish government wanted slower growth so as to curb Turkey's current account deficit (CAD), which is now down to 7% of GDP from a high of 10%. If it weren't for that drop, Turkey may not have received investment grade from Fitch. The CAD is the major issue in the Turkish economy, and it was the main focus of the Turkish authorities. I think Turkey will still grow 3% or 4% in 2013. That is not a bad figure at the end of the day. In the past, the Central Bank of Turkey (CBT) was always focused on the problem of inflation and price stability. Post-2008, in the post-Lehman Brothers period, the CBT aimed at achieving different macro stability figures, not only in inflation, but also growth, employment, and the CAD and foreign deficit has been important. The CBT has been closely monitoring these issues. These are all important if Turkey is to achieve overall financial stability. Price stability is easier, but financial stability is much more important. The CBT and the government both understand this and work accordingly.

“SMEs are now achieving more competitive pricing."

What are Halkbank's strategies and goals for 2013?

After the soft landing we experienced in 2012, I think 2013 offers an opportunity for economic growth. The CBT and other regulatory bodies will stick with moderate increases in loan volumes, which is considered an effort to sustain growth and macro-stability at the same time. The banks will also support these measures, given their positive impact on margins and competition. We at Halkbank have targeted 15% to 18% loan growth in 2013. As a result of strategies over the last five years, Halkbank has decoupled from the banking sector in a positive way, with its efficiency and profitability indicators. We have one of the highest returns on equity (ROE) in the Turkish banking sector, and our aim is to sustain the highest profitability level possible. Our business plan for 2013 is to focus investment on areas of growth that will sustain profitability. We will implement a new credit card brand and program, which was launched at the end of 2012. We want to broaden our customer base by strengthening our position in SME banking. We will also finance various infrastructure projects that are already in the pipeline. Halkbank will continue its growth strategy as a financial group together with its subsidiaries. We expect these financial subsidiaries to continue growing in line with our bank's targets. We have no plans for international acquisitions in the near term, but we constantly analyze opportunities around us. We would like to explore opportunities in Islamic banking, and we have already begun preparing feasibility reports. We should finalize our Islamic banking project in 2013. That means offering interest-free loans, although not as Halkbank, but via an Islamic banking subsidiary. This is also a strategy for tapping into the under-banked segment of the economy. Islamic banking in Turkey has a market share of just 5%, but the potential is much more, I think.