Turkish Banking Sector Analysis Essays - Bank,

Turkish Banking Sector Analysis INTRODUCTION The banking sector constitutes the greater part of the Turkish financial system. Banks carry out a great portion of the activities taking place in both money and capital markets. The share of the banking sector in the financial system as of the end of March 1997 was 71 %. Turkey's financial system and its banking sector are virtually synonymous as a consequence of the country's economic and historical development. There are a number of factors that give banking its prominent role in Turkish economy. These are: The economic structure peculiar to Turkey. The choice to turn resources into long-term investments through banks for the aims targeted in the development plans and programmes, and the establishment of banks by the state to finance certain sectors. The extensive application of continental European banking practices as a model in the legal structure of the banking system, and an emerging capital market that can compete with the banking sector in the forthcoming years. BACKGROUND The development of the Turkish banking sector may be divided into six periods which differ as to policy and method: The Period of the Money-Changers and the Galata Bankers (pre-1847): During this period, all quasi-banking activities were carried out by money-changers The Galata bankers consisted mostly of the ethnic-minorities in Istanbul. The Period of Foreign Banks (1847-1908): Since the financial situation of the Ottoman Empire deteriorated after the Crimean War, the Empire faced the need for external financial support. Representatives of several foreign banks arrived with the aim of extending credits to the empire at high interest rates. The Ottoman Bank (Osmanli Bankasi) was established in 1856. Its head office was in London and it served as a Central Bank until the 1930's. Development of National Banking and Implementation of Etatism (1909-1944): The years following the proclamation of the Second Constitution (1908) gave rise to the national banking movement which was a reaction to foreign banking. Twenty-four national banks were established in Istanbul and Anatolia between the years 1908 and 1923. However, foreign banks continued to dominate banking activities due to consecutive wars (1911-1922), capitulations granted foreigners and the scarcity of national capital. In 1923, the first National Economic Congress was held in Izmir. It dealt with a large number of economic problems that the country would have to solve. The Congress took the decision that banks would be established to finance the main sectors of the economy. T.Is Bankasi(1924), Sanayi ve Maadin Bankasi (1925), and Emlak ve Eytam Bankasi (1927) were established to provide commercial, industrial and housing credits, respectively. However, the negative effects of the Great Depression on the balance of payments and lack of domestic capital called for a government-supported economic development policy in subsequent years. As a result of this policy, six state banks were established in the 1930s, including the Central Bank of the Turkish Republic. Development of Private Banks (1945-1960) Despite the adverse effects of the Second World War, a significant growth rate and industrialisation were achieved with the support of the newly-established state banks. This created a tremendous increase in the capital stock of the private sector. Beginning in the early 1950s, etatism weakened because of positive developments in the private sector, expansion of international co-operation and transition to a multi-party political system. A more liberal and private sector-oriented policy was adopted in the following years, and as a result, more than 30 private banks were established before 1960. Planned Development Period (1961-1979) A new planned development policy was adopted in the beginning of the 1960s. According to this system, the state would administer the economy and issue recommendations to the private sector through five-year plans prepared by the government to cover all sectors. As recommended in the plans, several development and investment banks were established to finance various sectors in the 1960s and1970s: For example Turizm Bankasi in 1960, S.Y.K.B. in 1963, DevletYatirim Bankasi (Eximbank) in 1964, Devlet Sanayi ve Is?i Yatirim Bankasi (T?rkiye Kalkinma Bankasi) in 1975. Liberalization and Internationalization in Banking (post-1980): The new liberal economic policy implemented in January 1980 aimed at integration with world economy by establishing a free market economy. As a reflection of this policy, the 1980s witnessed continuous legal, structural and institutional changes and developments in the Turkish banking sector. During these years, a series of