Cablegate: Banks Claim Limited Exposure to Global Crisis


DE RUEHAK #1763/01 2841211
P 101211Z OCT 08




E.O. 12958: N/A


Sensitive but unclassified. Not for Internet distribution.

1. Summary: While the world financial crisis continues, the
Turkish banking sector is relatively robust thanks to its
strong balance sheets and limited foreign exposure. The
Banking Regulation and Supervision Agency (BRSA) is confident
about the financial position of the sector, and says bankers
continue to watch global risks to minimize negative impacts.
Bankers, financial experts, and BRSA told us that Turkey is
benefiting from structural reforms implemented following
banking and liquidity crises in 2001. BRSA does not foresee
major short term impacts, but expects medium and long term
harm if defaults increase as the economy slows and interest
rates climb as global credit remains tight. In its first
direct response to the impact of the global crisis in Turkey,
on October 9 the Central Bank announced it will act as a
broker in the Foreign Exchange Depot Market to ensure that
banks can borrow and lend to one another without default
risk. This action will facilitate trades in the foreign
currency market to avoid liquidity shortages. Time will tell
to what extent the global financial crisis will affect
Turkey, but follow-on economic effects look to be the biggest
risks. End summary.

Sticking to the Basics Pays Off for All Banks in Turkey
--------------------------------------------- ----------

2. Since 2001, the Turkish banking sector has improved
significantly through economic and structural reforms and the
creation of the watchdog Banking Regulation and Supervision
Agency. In a difficult global financial environment, Turkish
banks have protected themselves by sticking to the basics and
not having an extensive mortgage system. Banks Union
President and Is Bank CEO Ersin Ozince said on October 8 that
the sector is lucky to face economic challenges at a time
when the sector is strong, but added that increases in the
cost of borrowing will be inevitable. State-owned Halk
Bank's CEO Huseyin Aydin said on October 7 that there was not
excessive exchange rate or interest rate risk in the sector
in general, and any credit risk that may come from small and
medium companies should be minor.

View from the Regulator

3. BRSA Vice President Sabri Davaz told us on October 8 that
Turkish banks do not have liquidity problems and currently
maintain a capital adequacy ratio of 17%, which is well above
the required level of 12%. Davaz told us even though banks
are spending more to get access to capital because of higher
risks globally and domestically, they have not had difficulty
rolling over their foreign exchange loans in the past months.
He noted that the debt of the private sector creates an
ongoing risk for the economy overall. Davaz listed the main
banking risks as maturity mismatch (deposits of three months
or less and loans of one year or more); a slow down in
economic growth; outstanding debt of the private sector
(Central Bank and Banks Union estimate the debt at around $70
billion in 2008 and think it will top $100 billion in 2009);
and rapidly-changing interest rates. Davaz also noted that
even though they do not expect a major short-term impact of
global conditions on the banking sector, BRSA expects the
number of non-performing loans to increase due to contraction
in the economy.

4. A Banks Union report shows the number of non-performing
consumer loans increased in the second quarter of 2008, even
while the volume of loans increased. Consumer loan volume
grew 17.4% in the first half of the year. During periods of
rising interest rates, consumer loans are often the first
harbinger of a change in sentiment, and bankers expect demand
for these loans to slow. According to BRSA, as of October
2008 the overall sector loans-to-deposit ratio is still at
87.3%. Deposits of up to YTL 50,000 ($37,000) are under the
deposit insurance guarantee in Turkey. Leading business
daily Referans called for the GOT to raise this limit to keep
deposits in Turkish banks. Former Central Bank Governor
Ercin Kumcu and other business leaders have echoed the call
for higher insurance limits.

Central Bank Facilitates Foreign Currency Trades
--------------------------------------------- ---
5. On October 9, the Central Bank announced it will act as a
broker in the Foreign Exchange Depot Market to ensure that
banks can borrow and lend to one another. The FX Depot
Market will act as intermediary between borrowing and lending
banks, and transactions will be collateralized and anonymous.
Borrowing periods may extend from one week to one month and
will be made in minimum increments of $1 million or one
million Euros. According to its official press release, the
Bank will continue this role "until uncertainty in
international markets ends" to avoid liquidity shortages.
This is the Central Bank's first direct response to the
impact of the global crisis in Turkey. Central Bank Deputy
Director General Emrah Eksi said banks are in good shape
overall, although he noted they will have a total of $3
billion in foreign exchange loans to roll over before the end
of 2008. The Foreign Exchange Depot Market should make that
process easier.

International Interest

6. The Turkish banking system has attracted major foreign
banks to Turkey through mergers and acquisitions (M&A) in the
past five years. Most of these were European banks such as
HSBC, Dexia, Fortis, Unicredito and the National Bank of
Greece. One of the important M&A's of the sector was
Citibank's 2006 purchase of 20% of Akbank--Turkey,s leading
commercial bank. The crisis in the U.S. and European banking
sectors has raised questions about the position of foreign
banks operating in Turkey. BRSA's Davaz is not concerned.
He told us that ownership of Fortis Bank's Turkish operations
is held exactly like ownership of the parent bank holding
company. Seventy percent is held by Banco Nationale Paribas,
and 30% is held by the Government of Belgium. BRSA, in its
role as regulator and auditor, does not foresee risks for
Fortis or other foreign banks operating in Turkey. Sevdil
Yildirim from BGC Partners in Istanbul, a U.S. asset
management and consulting company, told us October 8 that
Gulf countries and investors remain interested in buying
Turkish banks and investing in privatizations and other
assets as they become available. Regarding the position of
Yapi Kredi Bank, co-owned by Unicredito and Koc Holding, and
Garanti Bank, co-owned by GE Investment and Dogus Holding,
Yildirim noted that both Koc and Dogus have solid cash
positions. Ferit Sahenk, main owner of Garanti Bank and CEO
of Dogus, said that regulatory and business changes made
since 2001 have made Turkish banks more resilient to shocks.


7. While the Turkish banking sector may be less exposed to
global financial risks than that of other countries, there is
concern about the follow-on economic effects of a tightening
of credit or an increase in consumer or SME loan defaults

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