VZCZCXYZ0005
PP RUEHWEB

DE RUEHAK #1763/01 2841211
ZNR UUUUU ZZH
P 101211Z OCT 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 7642
INFO RUEHIT/AMCONSUL ISTANBUL PRIORITY 4823
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RHEHAAA/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY

UNCLAS ANKARA 001763 
 
SENSITIVE 
SIPDIS 
 
E FOR U/S JEFFERY 
EEB FOR A/S SULLIVAN 
TREASURY FOR VELTRI AND MORAVEC 
 
E.O. 12958: N/A 
TAGS: ECON EFIN TU
SUBJECT: BANKS CLAIM LIMITED EXPOSURE TO GLOBAL CRISIS 
 
REF: ANKARA 1744 
 
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. 
 
Comment 
------- 
 
¶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 
(septel). 
 
Visit Ankara's Classified Web Site at 
http://www.intelink.sgov.gov/wiki/Portal:Turk ey 
 
WILSON