The Turkish financial sector has gone through major structural changes as a result of the financial liberalization program that started in the early 1980s. The abolition of directed credit policies, liberalization of deposit and credit interest rates and liberal exchange rate policies as well as the adoption of international best standard banking regulations have accelerated the structural transformation of the Turkish banking sector. Since the 1980s, the Turkish banking sector has experienced a significant expansion and development in the number of banks, employment in the sector, diversification of services and technological infrastructure. The significant volatility in the Turkish currency and foreign exchange markets experienced in 1994, 1998 and 2001, combined with the short foreign exchange positions held by many Turkish banks at those times, affected the profitability and liquidity of certain Turkish banks. In 2001, this resulted in the collapse of several institutions. The banking sector also experienced a sharp reduction in shareholders’ equity in 2001, with the capital for 22 private sector banks declining to US$4,916 million at the end of 2001 from US$8,056 million for 28 banks at the end of 2000, according to the Banks Association of Turkey.
The Turkish money markets and foreign exchange markets have stabilized since 2001, in large part due to regulatory reform and other governmental actions (including a three-part audit undertaken in 2001 and the first half of 2002, after which all private commercial banks were either found to be in compliance with the 8% minimum capital requirement, transferred to the SDIF or asked to increase their capital level). According to the SDIF’s official data, since 1994, a total of 25 private banks have been transferred to the SDIF due to, among other things, weakened financial stability and liquidity. The transparency of the system has improved along with the establishment of an independent supervisory and regulatory framework and new disclosure requirements. Structural changes undertaken have strengthened the private banking sector and resulted in a more level playing field among banks. Certain advantages for state banks were diminished while the efficiency of the system increased in general as a result of consolidation. Efforts are continuing on the resolution of the SDIF banks while restructuring and privatization of the state banks is progressing.
In August 2004, in an attempt to reduce the regulatory costs inherent in the Turkish banking system, the government reduced the rate of the Resource Utilization Support Fund (“RUSF”) applicable on short-term foreign currency commercial loans lent by banks domiciled in Turkey to zero; however, the 3% RUSF charge for some types of loans provided by banks outside of Turkey with an average repayment term of less than one year remains valid. In addition, effective from January 2, 2013 RUSF rates for cross-border foreign exchange borrowings extended by financial institutions outside of Turkey with an average maturity of between one to two years changed from 0% to 1%, and those with an average maturity of between two to three years changed from 0% to 0.5% while those with an average maturity of three years or more is set at 0%. The government also increased the RUSF charged on interest of foreign currency-denominated retail loans from 10% to 15% in order to curb domestic demand fueled by credit, which was in turn perceived to be adversely affecting Turkey’s current account balance. The Council of Ministers determined the RUSF charged on consumer credits to be utilized by real persons (for non-commercial utilization) to 15% with its decision numbered 2010/974, which was published in the Official Gazette dated October 28, 2010 and numbered 27743.
The Turkish Banking Sector
The Turkish banking industry has undergone significant consolidation over the past decade with the total number of banks (including deposit-taking banks, investment banks and development banks) declining from 81 in 1999 to 45 on December 31, 2008, which stayed at that level until February 2011 when Fortis Bank A.Ş. merged with Turk Ekonomi Bankası A.Ş. A number of banks were transferred to the SDIF and eventually removed from the banking system through mergers or liquidations. The table below shows the evolution of the number of banks in the Turkish banking system as of the end of each indicated year.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Number of banks... 54 50 48 47 46 46 45 45 45 44 45
Source: Banks Association of Turkey (www.tbb.org.tr)
As of December 31, 2012, 45 banks were operating in Turkey, including the newest Turkish bank (Odea Bank A.Ş.), which was granted an operating license in September 2012 and is the first bank since 1997 to obtain a license to establish a deposit bank in Turkey. Thirty-two of these were deposit-taking banks and the remaining banks were investment and development banks (four participation banks, which conduct their business under different legislation in accordance with Islamic banking principles, are not included in this analysis). Among the deposit-taking banks, three banks were state- controlled banks, 12 were private domestic banks, 16 were private foreign banks and one was under the administration of the SDIF. On December 20, 2012, the BRSA authorized the establishment of a new deposit bank to be controlled by Bank of Tokyo-Mitsubishi UFJ Ltd.
The Banking Law permits deposit-taking banks to engage in all fields of financial activities, including deposit collection, corporate and consumer lending, foreign exchange transactions, capital market activities and securities trading. Typically, major commercial banks have nationwide branch networks and provide a full range of banking services, while smaller commercial banks focus on wholesale banking. The main objectives of development and investment banks are to provide medium-and long-term funding for investment in different sectors.
Deposit-taking Turkish banks’ total balance sheets have grown at a compound average growth rate (“CAGR”) of 14.94% from December 31, 2006 to December 31, 2012, driven by loan book expansion and customer deposits growth, which increased by a CAGR of 19.78% and 13.60%, respectively, between December 31, 2006 and December 31, 2012, in each case according to the BRSA. Despite strong growth of net loans and customer deposits since 2006, the Turkish banking sector remains significantly under-penetrated compared with banking penetration in the eurozone.
Competition
The Turkish banking industry is highly competitive and relatively concentrated with the top 10 deposit-taking banks accounting for 82.56% of total assets of deposit-taking banks as of December 31, 2012 according to the BRSA. Among the top 10 Turkish banks, there are three state-controlled banks – Ziraat, HalkBank and Vakıfbank, which were ranked second, sixth and seventh, respectively, in terms of total assets as of December 31, 2012 according to the BRSA. These three state- controlled banks accounted for 28.49% of deposit-taking Turkish banks’ performing loans and 36.77% of total deposits as of December 31, 2012 according to the BRSA. The top four privately-owned domestic banks are the Bank, Türkiye Garanti Bankası A.Ş. (“Garanti”), Akbank A.Ş. (“Akbank”) and Yapı ve Kredi Bankası A.Ş. (“Yapı Kredi Bank”), which in total accounted for approximately 50.33% of deposit-taking Turkish banks’ performing loans and approximately 47.93% of total deposits as of December 31, 2012 according to the BRSA. The remaining banks in the top 10 deposit-taking banks in Turkey include three mid-sized banks, namely Finansbank A.Ş. (“Finansbank”), Denizbank A.Ş. (“Denizbank”) and Turk Ekonomi Bankası, which were controlled by National Bank of Greece, Sberbank and BNP Paribas, respectively, as of December 31, 2012.
The following table shows major shareholders, key indicators and market shares of the top 10 deposit-taking banks ranked by total assets in the Turkish banking sector as of December 31, 2012.
Rank by
Assets Bank Major Shareholders
Assets (US$ millions) Assets market share Loans market share(1) Deposits market share Branches
1 Işbank İşbank Personnel Supplementary Pension Fund (40.7%), Cumhuriyet Halk Partisi (28.1%)
98,564,298 12.8% 13.4% 13.7% 1,259
2 Ziraat Bank Treasury (100%) 91,498,740 11.9% 8.9% 15.4% 1,490
3 Garanti Doğuş Group (24.2%), BBVA
(25.0%)
89,995,781 11.7% 11.5% 11.3% 938
4 Akbank Sabancı Holding, affiliates and family (49.0%), Citigroup (9.9%)
87,558,167 11.4% 11.0% 11.2% 975
5 Yapı Kredi
Bank
Koç Financial Services(2)(81.8%) 68,640,566 8.9% 9.4% 8.8% 928
6 HalkBank Privatization Administration
(51.1%)
60,832,380 7.9% 8.3% 10.4% 839
7 VakıfBank General Directorate of Foundations (58.6%)
58,752,957 7.6% 8.5% 8.7% 744
8 Finansbank National Bank of Greece (94.8%) 30,562,701 4.0% 4.5% 4.2% 582
9 Denizbank Sberbank (99.85%) 24,830,296 3.2% 3.5% 3.5% 610 10 Turk Ekonomi Bankası TEB Holding (55.0%)(3), BNP Paribas (40.4%) 24,456,368 3.2% 3.7% 3.7% 509
Source: Banks Association of Turkey (www.tbb.org.tr) and BRSA (www.bddk.org.tr) Note: Rankings and market shares among deposit-taking banks only.
Note: The Banks Association of Turkey’s definition of branch varies from the Bank’s definition. Therefore, the information provided above may differ slightly from what is provided elsewhere in this Base Prospectus.
(1) Performing loans only are included.
(2) Koç Financial Services is a 50/50 joint venture owned by the Unicredit Group and Koç Holding. (3) TEB Holding is a 50/50 joint venture between BNPP Fortis Yatırım Holding A.Ş. and Çolakoğlu Group.