LEAN & MEAN

Turkey 2014 | FINANCE | REVIEW: BANKS

Over the past decade, Turkey has shed its more familiar boom and bust economic mantle, where in a low interest rate and competitive environment, banks have developed a plethora of instruments and services to tempt investors, both local and foreign.

One of the fundamental outcomes of Turkey's 2001 banking crisis was the pruning of a bloated 79-participant banking sector by the newly created watchdog the Banking Regulation and Supervision Agency (BRSA). Thus, when, seven years later, much of the world went into toxic shock, Turkey's regulated banks faired better. Since then, and with over a decade of political stability, the sector has diversified its offering. In the still-new mortgage system, 2013 housing loans stood at TL97 billion, spelling TL59,000 per capita compared to TL44,000 in 2009. Today, the country has successfully complied with Basel II standards, although for 2014 uncertainty over the potential outcome of Basel III capital adequacy ratio (CAR) requirements is somewhat of an overhang.

Meanwhile, a raft of cutting-edge services has emerged, notably on the digital platform, while foreign ownership has broadened the commercial footprint. For 2012, Turkey's financial sector overall to GDP ratio was at 167% compared to the emerging market (EM) average of 188% and world average of 372%.

THE PLAYGROUND

In a 49-bank sector, 32 are deposit banks, 13 are development and investment entities, while four are participation banks providing a sharia-style environment. Among these deposit institutions, three are state-owned, while 17 are foreign-owned, and 12 are in private hands.

As of 2013 the active customer base, at 12.4 million people, generated a transaction volume of TL2.2 trillion, owning 100 million debit cards and 57 million credit cards, with both figures showing a steady upward march over the past decade. General-purpose loans had surged to TL116 billion from a meager TL27 billion in 2007. In 2013, retail loans grew 26%, while corporate and SME loans climbed 34% and 37%, respectively YoY. Predictably, for that year, the deposits-to-total-assets ratio slid to 54% (it was around 61% in 2010), while the loans-and receivables-to-deposits ratio had reached close to 110%. It follows too, that the CAR for the sector had fallen to 15.7% as of September 2013 following a gradual slide from 20.6% in 2009. Average return on equity (ROE), according to the IMF, was at 19% for the third consecutive year. Meanwhile, BRSA data for February 2014 reveals that sector assets climbed by 3.3% from December 2013, while profitability shed 26.3% YoY. Assets as of February 2014 amounted to $842.3 billion. And with credits of $507.5 billion for the month, net term profit slipped by 26.3% to TL3.2 billion.

THE MAJOR PLAYERS

Turkey boasts several banks ranked among the Top 1,000 World Banks 2013. These, with their rankings, are Turkiye İş Bankası (110), Akbank (119), Türkiye Garanti Bankasi (120), TC Ziraat Bankası (139), and Türkiye Vakıflar Bankası (187).

İŞBANK

Turkey's largest privately owned bank—established in 1924 at the dawn of the Turkish Republic—İşbank is an economic powerhouse that, including finance, has direct stakes in 25 businesses ranging from glass and telecommunications, to industry and service sectors. The bank has 1,309 branches, 5,673 ATMs, and 279,218 POS sites. Its various market shares make for pleasant reading as it ranks first in loans at 13.5%, with 12.4% of TRY loans and 16% of FX loans. It is first in deposits at 12.7%, with 11.5% of TRY deposits and 14.7% of FX deposits. The bank is also first by total assets with a 12.9% share. Its clientele hold 6.2 million credit cards and 9.6 million debit cards. As at December 31, 2013 bank-only loans and deposits respectively stood at TL135 billion and TL121 billion, with total assets of TL201 billion and net income at TL3.2 billion. The loans-to-assets ratio was at 64.1%, the NPL ratio at 1.6%, and CAR at 14.4%, while ROE stood at 13.7%.

AKBANK

Akbank, established in 1948, had realized fully automated operations by 1963. Turkey's most recognized bank, it remains a pioneer of leading-edge banking solutions such as its Big Red House mortgage dedicated branches and mobile banking facilities. These have prompted industry staples like The Banker, Euromoney, World Finance and Global Banking & Finance Review to vote it “The Best Bank of Turkey." Akbank principally engages in the consumer, commercial and SME, corporate, and private banking segments as well as foreign exchange, foreign trade financing, and treasury transactions.

For 2013, Akbank posted a net consolidated profit of TL3.8 billion. Its NPL of 1.4% was one of the more impressive in the sector. Deposits exceeded TL112 billion marking a 24% rise YoY. Consumer loans for 2013 were at approximately TL28 billion, while loans to SMEs and corporates rose 31% to TL77 billion YoY. In 2014 so far, Akbank has raised a $221.8 million and €817.7 million syndicated term loan from international loan markets to be channeled into foreign trade finance.

GARANTİ BANK

Established in 1946, Garanti Bank today operates a network of 1,000 branches. It prides itself on leveraging technology to enhance performance and customer service. It was the first bank to set up centralized operations in Turkey, boasting a 99% centralization ratio, and also the first bank to establish a paperless banking-operating environment. Impressively, too, it was the first bank in the world to introduce ID scanning at its branches.

For 2013 the bank posted a TL3 billion net income with total assets of TL197 billion, up 22.9% YoY. As at December 31, return on average assets (ROAA) was at 1.7%, with a ROAE print of 13.7%. In lending, the banks' share of total TL- and FX-denominated loans respectively stood at 10.8% and 17.0%. Total deposits rose by 21.7% YoY to TL106.5 billion with an 11.2% market share of total deposits. The NPL ratio was realized at 2.1%, while the CAR stood at 14.42%.

YAPI KREDİ BANK

Yapı Kredi was established in 1944 and, with total assets of TL160 billion, has grown to become the fourth largest private bank in Turkey. It has a customer base of 8.8 million served by 949 branches but also, again, alternative delivery channels (ADCs) that account for 83% of overall transaction volume. In addition to the digital platform and two awarded call centers, its ADCs feature 3,000 ATMs. Describing itself as a fully integrated financial services group, Yapı Kredi has, for a quarter of a century, been the market leader in credit cards, with a 20.6% market share in outstanding volume, plus a 17.7% share of issuing volume, and a 17.8% share in number of credit cards. It is also a frontrunner in terms of factoring (1st with an 18.1% market share), leasing (1st with a 14.8% market share), mutual funds (2nd with an 18.2% market share), and brokerage (3rd with 6.9% market share).

Consolidated 2013 results reveal a TL3.7 billion net income, up 74% YoY. The bank managed to strengthen both capital and liquidity with a bank-only CAR of 16%. The bank-only-loans-to-deposit ratio was at 110% contrasting the 8pp overall sector rise to 111%. YoY total loans climbed 28%, and the loans-to-assets ratio rose to 62% from 59% at YE2012. Total deposits rose 24% mostly on foreign currency deposits. The bank saw an NPL ratio of 3.5%, vs. 3.2% at YE2012.

HALKBANK

Launched in 1938, Halkbank has witnessed the entire evolution of Turkish banking, having become synonymous with SME funding since the 1950s. Today, fundamentally robust, it ranks sixth by assets, and also has the sixth largest network of 862 branches. YE2013 net income rose 6.0% YoY to TL2.751 million. Profitability was confirmed by respective RoE and RoA ratios of at 20.8% and 2.2%. The NIM came in at 4.9%, and CAR at 13.9%. Total assets rose 29.2% YoY on broad loan growth of 28.8%. The NPL ratio declined to 2.6%. Meanwhile, the loans-to-deposit ratio of 84.2% affords room for further growth in the months ahead.

ODEABANK - EXTENDING THE FOOTPRINT

Due to its juicy demographics, Middle Eastern and Asian companies have been keen to develop a footprint in Turkey's finance industry, in contrast to the recent withdrawals of Western banks from the wider region. A 15-year hiatus in the licensing of a foreign bank ended in 2011 with the arrival of Odeabank, a full-service, fully-owned subsidiary of Bank Audi of Lebanon. With 42 branches, it exploits its parent's investment traffic in the MENA region. Today, with assets of $7 billion, it has become the 14th largest player in Turkey. The bank has an aggressive plan to rank among the largest by 2017, fueled by its innovative offering that led to the April 2013 launch of an investment platform exclusively geared at the retail-banking segment, a first for the Turkish banking sector. Its credit card, Bank'O Card, is free of fees, while mobile banking customers conveniently access the OdeaCep mobile branch using internet banking ID without repeat registration.

PARTICIPATION SECTOR

Turkey's four participation banks are facing the prospect of competition from the sharia windows of conventional entities. Turkey's Deputy Prime Minister, Ali Babacan, has revealed that two state-owned institutions, Halkbank and Ziraat Bank, are to open sharia-style windows. The two combined have a branch count of 2,317 with which to appeal to Turkey's as-yet unbanked, many of whom may prefer this alternative to conventional banking. This is obliging the participation banks to innovate rapidly beyond retail banking. A good example is Bank Asya, geared at SMEs and retail banking, which, among other projects, has launched a sharia-compliant pension fund that today is ninth among Turkey's 17 insurers with approximately 100,000 clients.