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Order ReprintAt a recent meeting in Istanbul, Global Finance brought together some of the key figures in Turkey’s banking and finance industry to discuss the country’s prospects.
Global Finance: Will recent improvements in Turkey’s economic fortunes prove sustainable in the long term?
Global Finance: Will recent improvements in Turkey’s economic fortunes prove sustainable in the long term?
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Serdengecti: By applying the present policies, we can achieve better results in the future |
Levent Celebioglu, financial institutions assistant general manager, Türk Ekonomi Bankasi: This time we have a very stable political environment. We have a single-party government that respects what the bureaucrats are doing, so the bureaucrats, the politicians and the private sector are working in harmony.
Hayri Culhaci, executive vice president, strategic planning, Akbank: Having a strong, independent central bank has helped a lot. For the first time in our history we have a central bank that is seriously enabled to control inflation.
Erkan Uysal, head of research department, Capital Markets Board of Turkey: International developments have helped, too. Due to the low levels of return in developed countries, international funds are flowing to emerging markets, which has helped them finance current deficit and restore stability.
Hakan Ates, president and CEO, DenizBank: There’s a long way to go. Sustainability of this condition requires three changes: tax reform, social security reform and privatization. If necessary, deregulation and structural reforms should come next to maintain the sustainability of these conditions.
Hüseyin Imece, executive vice president, Yapi Kredi: The economic achievements are very impressive, but a good part of this can be seen as normalization after a long period of chronic instability and crisis. But it might be difficult to maintain the existing successful environment. While the banking system has cleaned up in the last three or four years, the corporate sector has not yet.
Zeki Önder, executive vice president, Sekerbank: We have to also give credit to the people. The single-party government became successful implementing the economic plan, but from time to time they wanted to follow their own agenda, and it was always public pressure—and the markets—that brought them back on the path.
Neslihan Tombul, managing director and senior representative, The Bank of New York: Success has to be homegrown. Even though the IMF and the EU served as very important anchors in setting Turkey on a straight path, most of the work was done inside Turkey. We should not rely too much on the IMF and EU if we want it to be sustainable and permanent.
Hüseyin Imece, executive vice president, Yapi Kredi: The economic achievements are very impressive, but a good part of this can be seen as normalization after a long period of chronic instability and crisis. But it might be difficult to maintain the existing successful environment. While the banking system has cleaned up in the last three or four years, the corporate sector has not yet.
Zeki Önder, executive vice president, Sekerbank: We have to also give credit to the people. The single-party government became successful implementing the economic plan, but from time to time they wanted to follow their own agenda, and it was always public pressure—and the markets—that brought them back on the path.
Neslihan Tombul, managing director and senior representative, The Bank of New York: Success has to be homegrown. Even though the IMF and the EU served as very important anchors in setting Turkey on a straight path, most of the work was done inside Turkey. We should not rely too much on the IMF and EU if we want it to be sustainable and permanent.
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GF: How can Turkey balance the fact that it occupies a neighborhood that is politically challenging while at the same time offering significant economic potential for Turkish companies and banks?
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Tombul: Turkey enjoys very friendly relations, politically and economically, with most of the countries surrounding it. There is a lot of activity in the region that both Turkey and its neighbors are benefiting from. There’s room to grow here as well. Politically it enjoys favorable relationships, even though it can be a difficult neighborhood at times.
Celebioglu: There is huge potential for trade with the countries around us, particularly Iran and Iraq. Before the Iran-Iraq war, these two were among Turkey’s top-five trading partners. With the slowdown in Europe, exporters are starting to look at these markets, which within three years could represent as much as 25% of our foreign trade.
Imece: I think the challenges outweigh opportunities for Turkey, especially with Syria, Iran and Iraq. In the long run, yes, there are opportunities there, but in the short run there will be more challenges.
Culhaci: From a banking point of view, there are enormous opportunities in the future, but in the short run we are not totally able to take that opportunity because of the risk concerns. Having a firm foothold in Turkey, though, will give a bank strong potential across the region as those countries become more stable.
Önder: We have connections with our neighbors, culturally, ethnically and historically, so Turkey’s efforts should be guided by a focus on their well-being. The more prosperous they are, the better partners they become for us.
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GF: Is it fair to describe Turkey’s accession to the EU as “far in the future and painful but inevitable”?
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Tombul: Look at other members that resembled Turkey’s profile, like Spain and Greece and Portugal. They had very similar issues to deal with, and they have become rising stars within Europe—real success stories.
Celebioglu: Turkey is already a part of the European Economic Union because we have the customs union—we have all the benefits of that economic environment—but we are not in the social part. I believe in the long run Turkey will become part of the social union as well.
Uysal: Europe has to show more that they are willing and sincere to accept Turkey as a full member in the future. There is mutual benefit to Turkey and Europe, and also it will contribute to global stability if Turkey becomes a full member. If sincerity is established, I believe it is not painful and far in the future.
Serdengecti: The process of the next 10 years is more important than the eventual outcome itself. We have to make the public conscious that we simply have to do all of this social reform for ourselves, not because Europeans want it.
Ates: The process itself is very important to our country, but there’s a big chance for Europe, too. It is inevitable both for Europe and Turkey, but it doesn’t necessarily need to be painful.
Culhaci: It is clear that Europe will have many benefits from taking Turkey within the union—economically, politically, socially. The common wisdom for Europe says that Turkey is inevitable for the future of Europe.
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GF: What can be done to attract even more FDI to Turkey?
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Celebioglu: Brazil allows all FDI, but it’s not creating any foreign currency for the country, and the profit transfers cause big deficits on the country’s balance of payments Should Turkey impose rules that FDI should create foreign currency? Secondly, why should FDI come to Turkey? Price and cost stability is not enough. Turkey is an attractive market, but there are other countries such as Bulgaria or Romania, where utilities and labor are far cheaper than Turkey.
Tombul: There are still a lot of inefficiencies in the market that represent opportunities for foreign investors. There is a huge potential—in the local market more so than exporting. There’s a huge young population—70% is under 30—but unfortunately they don’t have high disposable incomes. But there is a lack of transparency here, and the rule of law has always been sort of nebulous.
Imece: We may be nearly there in terms of macro stability, but we need to create a fairer playing field. Without corporate sector restructuring, it will be very difficult for international companies to compete fairly. An efficient and competent bureaucracy also is needed—and a well-functioning legal environment.
Ates: If you look at FDI from a banking sector perspective, foreign banks may first improve the quality and availability of financial services in the domestic market and stimulate the development of the supervisory and legal framework—but there is evidence that the non-interest income and overall expenses of domestic banks are negatively affected by foreign bank entry. Because foreign banks pay relatively low taxes, they have an incentive to shift profits out of high-tax jurisdictions. Foreign banks may cause a lowering of credit standards by increasing competition and may suddenly cut their domestic activities when faced with problems at home. The same could apply for companies in any other industry.
Moderated by Joseph Giarraputo
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