TBY talks to İbrahim Turhan, CEO & Chairman of Borsa İstanbul, on Istanbul as a financial hub and the state of investor confidence.

İbrahim Turhan
İbrahim Turhan graduated with a Bachelor’s degree from Boğaziçi University, Faculty of Economics and Administrative Sciences, Department of Management. He received his Master’s degree in International Banking in 1995 and his PhD from the same university in 2001. In 2004, he was elected as Board Member by the General Assembly of the Central Bank of the Republic of Turkey. He was appointed as Deputy Governor in 2008. He also served as a member of the Advisory Board of the Contemporary Turkish Studies Chair at the London School of Economics (LSE) European Institute until the end of 2011. He was appointed as the Chairman and CEO of Borsa İstanbul on January 1, 2012.

Istanbul also has very ambitious plans to become a regional or even a global financial hub. How would the partnership with NASDAQ help you achieve this?

First of all, it would provide us with the most critical element of the exchange, which is infrastructure. When we incorporate the NASDAQ brand into our logo, it will inspire greater confidence among other parties. Thanks to the latest technology, and in addition to the know-how and creation of a market-friendly environment, the already-high liquidity of the Turkish market stands to increase further. We will also expand our institutional investor base. And, as a result, Borsa İstanbul will be more financially integrated with the global financial network. Also, for exchanges in the region, the location, hosting, and data center services will be more attractively offered up by Borsa İstanbul.

This year, despite many impressive gains, there is still some way to go to reach your stated goal of an 80% market cap to GDP ratio. What is your strategy for reaching this target?

The second half of 2013 in particular was a difficult period from many perspectives. It was difficult for developed economies and emerging markets alike, although I think that we have now reached a more satisfactory position when considering the surrounding environment. I am still confident that our ambitious target is achievable because, when I look at what is taking place in banking on a global scale in terms of the regulatory framework, and especially in light of the US Fed's tapering decision, financing organizations through banking will no longer be as easy as it once was. This was especially true during the 2008-2013 period. Credit will become more expensive, especially given the capital liquidity provisions of the regulatory framework. It will become even tougher to borrow and those corporations that need to expand their operational base or increase their market share will become more competitive. This is exactly the current situation of Turkish corporations, which will need to rely more on the capital markets, a trend that has already begun. While corporates are not currently large players in the liquidity market, we are observing more of them utilizing the corporate bond markets, or even the sukuk market. This is the partnership that we plan to sign with the World Bank regarding the opening of the first ever center for Islamic finance in Istanbul, of which Borsa Istanbul will be the host institution. This will contribute significantly to the development of this segment of the capital markets. I am also sure that after a certain threshold of awareness, the opportunities presented by the capital markets on the issuer-side, including interest from the company side, will increase further. This will bring them to the liquidity market as well, whereby we will achieve our target of 80% of GDP within a period of five years.

How would you assess investor confidence in Istanbul today?

Certain elements merit closer analysis, such as the leverage ratio, both for the public and private sectors. When I consider the fiscal outlook for the Turkish economy, I am amazed. I should point out that Turkey has the strongest fiscal outlook among the non-commodity exporters of the emerging markets; we are the first by far. The budget deficit is less than 2% of GDP, and the country is running a primary surplus, thanks to which the debt-to-GDP ratio is declining continually. For 2013, we expect it to be below 35%, rendering it a key element of the evaluation. In the private sector, the household sector is not leveraged at all, compared to any international measures. The leverage of Turkish households remains very low, which lends further credence to our evaluation. More importantly, Turkish households are inclined to the long position, which contradicts many other emerging markets where the households are in effect indebted. A glance at the banking industry reveals a high level of financial preparedness, and an acute knowledge of risk management, as well as robust capitalization. Meanwhile, the industry's capital adequacy and liquidity ratios constitute further strengths and provide another anchor for the Turkish economy. And so, in terms of leverage, I think this business discipline is the most advantageous and competitive aspect of the Turkish economy. One particular risk related to the current account deficit (CAD) concerns the low level of domestic savings. We note that Turkey imports almost all of its energy needs. All in all, when I look at the fundamental indicators, such as productivity, labor market conditions, demographics, and the investment environment, as well as other macro indicators, such as the fiscal outlook, financial service industry resilience to external shocks, and the leverage level, they all imply that the Turkish economy will be much stronger in the future. Therefore, confidence is already present, and we observe this in the approach of global investors as well. Moreover, the fact that we, as Borsa İstanbul, can strike a partnership agreement in 2013 amid market volatility is a clear indication of the high level of confidence in the Turkish market.

“ The budget deficit is less than 2% of GDP, and the country is running a primary surplus. "

And finally, what is your outlook for Borsa İstanbul over the next five years?

Within five years, Borsa İstanbul will definitely be the center of this region, including Southeastern and Central Europe, and the Middle East and North Africa (MENA). We will establish strategic links and partnerships with highly respected global players, and we have already begun with NASDAQ OMX. We will have a more vertically integrated system, a state-of-the-art business model for the capital markets, and an efficient, effective, fast, confident, and secure market place both for domestic and global investors. I am confident that we will reach all of our targets.