Recent Developments in Turkish Banking Sector

1
Recent Developments in Turkish Banking
Sector Basar Ordukaya Executive Vice
President Financial Institutions Correspondent
Banking Group 7 October , 2004 CTBC - Toronto
www.disbank.com.tr

2
Content

• Where are we today?
• What is working for and against us?
• Comparisons with Emerging Europe and Europe,
• Threats and opportunities.
• Challenges

3
Interest rates

• Market rates have come down and stabilized ...

Maximum rates for the crisis periods, average
rates for others
Source BRSA
4
Number of banks down to 50, still too many?
Source BRSA
5
Restructuring financial sector is (not only for
Turkey) costly business ...
Source BRSA
39 Treasury, 8 Private sector Total gt 47
billion Imarbank bill
6
Banking outlook

• Concentration The share of top 5 banks have
  increased from 54 (2001) to 60 2003
• The share of top 5 private banks have not changed
  during this period,
• Loans started to pick up,(Consumer financing has
  shown a dramatic improvement)
• Investment in public sector debt still one of the
  main items on the asset side of the balance
  sheets.
• Liquidity remains at good level
• Non performing loans (dramatically increased
  right after the crises) started diminishing .

7
Financial sector is in recovery phase after the
crises
2000 2002 2003 Assets 43 36
36 Loans 35 18 20 Deposits 53 39 41
Source BRSA (Banking Regulatory and Supervisory
Agency)
8
Share of public sector (SDIF State banks)
Savings and Deposit Insurance Fund
Source BRSA
9
Non-performing loans (NPL)

• Share of NPLs in total loans have declined to
  12 from 29, while coverage has also improved to
  88

Source BRSA
10
Currency mismatch

• Open position of banks have reduced to 348
  million level from 18.4 billion before the crisis

Source BRSA
11
Capital adequacy

• Noticeable improvement after the crises, but?

Capital Adequacy Ratio
Source BRSA
12
Profitability

• Banking sector profitability has improved
  considerably

Source BRSA
13
Capital Adequacy is high
Too many branches?..
14
... but share of state banks higher
Similar concentration with EU...
15
Share of international banks is low ....
1994
1999
Korea
Turkey June 2003 4.9
Thailand
Malaysia
Brasil
Colombia
Mexico
Peru
Venezuela
Argentina
Chez Republic
Polland
Chili
Hungary
0
10
20
30
40
50
()
Source Bankscope IMF, 2000.
16
Over 300 billion GNP in 4 years
Years billion 2001 144 2002 182 2003 238
2004 262 2005 268 2006 285 2007 294 2008
304
17
Advantages

• Stable markets, disinflation progress,
• Human resources (competence and education),
• Technology, and adaptation skills,
• Crisis management ability and experience,
• Uunderstanding of customer needs and product
  development skills.

18
Things to be improved

• Reputation needs to be strengthtened further,
  
• Public sector involvement is still too high,
• Asset quality (stock problem),
• Istanbul approach (as of Dec 2004 5.4
  billion),
• Asset Management Companies (nothing yet in
  sight),
• Lack of capital to sustain further growth ,
• Shallow capital markets,
• High intermediation costs,
• Savings rate low,

19
Opportunities

• Dynamic private sector,
• Population potential, education level, young
  etc.
• Low level of commercial and SME loans
• Foreign Direct Investment,
• Outsourcing and sharing,
• Regional advantages
• Great potential in mortgage financing

20
Threats

• Sustainable profitability derived from real
  customers,
• Unregistered economy,
• Macro stability, (Improving)
• Global developments and Turkeys sensitive
  geopolitical position.

21
What is in the agenda of BRSA ?

• Reduction of intermediation costs in coordination
  with Ministry of Finance, Treasury and Central
  Bank of Turkey,
• Resolution of NPLs,
• Establishment of financial holdings,
• Adaptation to Basel II,
• Development of the risk based supervision
  infrastructure.

22
Global trends, changing dynamics

• Financial Institutions will have to cater all
  aspects of the human life cycle (even
  non-financial),
• Interest rates have been globally lowest in the
  last 4 decades, but on the rise
• Improvements in cost/income (efficiency) is a
  must,
• Scale issue,
• Risk Management,
• Increased need for capital,
• Life will be more difficult for both financial
  and real sectors after Basel II,
• Corporate Governance
• Transparency,
• Increased roles and responsibilities for Boards
  and Management.

23
Turkish Foreign Trade Bank 7 October,
2004 Toronto www.disbank.com.tr

24
Brief Outline

• Today a well-established medium-size bank
  established in 1964 to be the first foreign trade
  bank of Turkey,
• 168 Branches (September 2004),
• USD 4,5 billion (Consolidated, IAS) Total Assets
  (June 30, 2004)

December 31st, 2003 Among listed private banks

• Assets 6th
• Loans 6th
• Deposits 6th
• Shareholders Equity 5th

• Off B/S Items 6th
• Branch N/work 5th
• Headcount 6th

Current Shareholder Structure Dogan Group
Companies 62,37 Disbank Employees Pension
Fund 16,56 Dogan Family 4,00 Other
(publicly held) 17,07
Source ISE
25
Well-Capitalization
World Rankings of Turkish BanksThe Banker
Magazine July 2004
Bank Turkey World Equity Ziraat
1 115 4,258 Akbank 2 131
3,554 Isbank 3 144 3,022 YKB 4
192 2,162 Garanti 5 253
1,570 Vakifbank 6 412
821 Halkbank 7 441
752 Disbank 8 491 634
Tier One Capital 31 December 2003
Consolidated , IAS figures
26
Steadily Growing Equity Base
Total Shareholders Equity (USD Mio)
December 2001 452 December 2002 465 December
2003 634

• No equity erosion after 2001 crisis,
• High CAR of 20,4 as of December 31, 2003,
• Strong free capital USD 488 mio. which enables
  Disbank to grow further organically and look into
  acquisition opportunities.

27
Client Focused Service Model
Business Units as of June 04
Number of customers ...... 1,564,968
Number of accounts.. 2,730,939 Number
of active customers. 822,269
Corporate Banking - Sales gt USD 20 MM of
active customers 1,583 companies (788 groups)
Commercial Banking - USD 2 MM lt Sales lt USD 20
MM of active customers 6,799
Small Business - Sales lt USD 2 MM of active
customers 59,531
Retail Banking of active customers 754,356
All 4 segments are supported by alternative
distribution channels Phone banking, Internet
banking, ATMs, and Kiosks.
Source ISE
28
Market Shares in International Trade ()
Strong Presence in International Trade Finance

• Disbank has become the preferred domestic bank in
  international trade transactions and managed to
  double its market share over the last 2 years,
• Signed US 400 million syndicated term loan
  (pre-export Financing) with international banks
  on August 9, 2004 (60 banks).
• How ?
• Larger branch network,
• High credit ratings,
• Well developed international correspondent
  banking network,
• Focusing in trade finance with a bespoke
  know-how and technical expertise,
• Some competitors left the game

January-June 2004 6,5
29
Solid financial performance together with strong
market share in trade finance enable a
well-developed international network.
Active Relationships with ECAs

• Turkish customers import of capital goods
  financed through Export Credit Agencies for
  medium to long-term.
• Relationship with Export Development Canada
  enhanced since 2001 and Disbank has become one of
  the most active users of the short-term finance
  program.

USA US EXIM GSM Canada EDC Finland FINNVERA De
nmark EKF Holland NCM England ECGD Sweeden EKN
Greece EGIO Poland KUKE Taiwan Eximbank of
Taiwan
Germany HERMES Switzerland ERG Austria ÖeKB Belgi
um OND Spain CESCE Italy SACE France COFACE Hu
ngary MEHIB Czech Republic EGAP Saudi Arabia IDB
30
Individual Ratings of Turkish Banks
31
Last Word Strong and reputable financial
sector is a must for healthy and growing real
sector