Turkey: Banking on resilience

OECD Observer Business brief
"Turkish banks have had no difficulty accessing foreign wholesale funding."








CEO of Isbank
Signs of economic slowdown in many parts of the world are increasing. There are fears that the euro area might enter its third recession since the global crisis. Despite the efforts made by the Bank of Japan, the Japanese economy is still struggling to achieve higher growth rates. The United States, on the other hand, appears as one of the few bright spots in the global economy, with a relatively strong growth performance and an improved labour market. The Fed, which is planning to start raising what has been an historically low policy interest rate, still needs to take into account the impacts of stronger US dollar and higher interest rates on already weak global demand. The deepening concerns over global economic growth have also dragged energy and commodity prices down: the fact that oil prices have declined by nearly half since June 2014 reflects the significance of such concerns.

In this rather dim global economic environment, the worries over growth prospects in emerging market economies also intensified, as these are expected to suffer from the deceleration in global trade. In particular, commodity exporters such as Russia and Brazil are likely to suffer most.

On the other hand, net energy importers such as Turkey will be among the main beneficiaries of the upcoming global economic conjuncture. The decline in energy prices will help contain the upward pressures on Turkey’s current account deficit, which is widely cited as the economy’s Achilles heel. In fact, the current account deficit is already much lower now than it was a year ago. The measures taken by the banking authority in order to dampen the growth in consumer loans and the Central Bank of Turkey’s tight monetary policies implemented especially in the first half of 2014 put a brake on the growth in domestic demand and imports. In contrast, the momentum in exports was sustained despite the problems in Turkey’s major markets. Thus, 2014 was a year of economic rebalancing for Turkey. We expect that domestic demand will pick up in 2015 compared to 2014, but only modestly, without putting pressure on the current account deficit or undermining financial stability.

The key question for the coming period is whether the Turkish economy can cope with the mounting risks in the global economy, the main one being the Fed’s tightening. Sooner or later, the Fed will start raising interest rates. The rate hike cycle will lead to a higher volatility in global financial markets and some liquidity will be withdrawn from emerging markets. The magnitude of spillovers from a Fed tightening will depend on the timing and the pace of rate hikes.

Rising geopolitical tensions in Turkey’s neighbouring countries, particularly Iraq and Syria, form another notable risk for Turkish economy.

The fact that the Turkish economy has demonstrated significant resilience in the face of several external and domestic shocks over the past few years makes us feel confident that the economy will weather the repercussions of those risks as well. Two factors help explain this resilience. One is the fiscal discipline that has been the main pillar of Turkish macroeconomic policies since the 2000-2001 crises. In fact, Turkey managed to reduce its government debt from 74% of GDP in 2002 to around 33% of GDP in 2014.

The other factor is the soundness and robustness of the Turkish banking sector. The healthy balance sheets of Turkey’s banks and the banking authority’s conservative approach and proactive policies allowed the banking sector to maintain its strong capital adequacy ratios and good asset quality under difficult market conditions. As of September 2014, the capital adequacy ratio in the sector is 16% and the non-performing loans ratio is 2.7%. Thanks to their good reputation, Turkish banks have had no difficulty accessing foreign wholesale funding even though the risk perception of emerging markets has deteriorated.

In sum, the global economy is entering a period of slower growth and risks for emerging market economies are rising. Although Turkey’s strong macroeconomic fundamentals and flexibility of its economy provide a certain level of immunity to those risks, the Turkish economy is nevertheless expected to grow below potential for the next few years. In order to restore growth to its potential trend, bolster productivity and avoid falling into “middle-income trap”, Turkey should now focus on microeconomic reforms especially in core areas such as education, business environment, the labour market and energy. Realising these reforms will allow Turkey to strengthen its reputation as an appealing destination and a reliable market.

Visit www.isbank.com.tr/en/ 


 ©OECD Observer No 301, Offprint January 2015

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

OECD Observer Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Subscribe now

<b>Subscribe now!</b>

To order your own paper editions,email Observer@OECD.org

Online edition
Previous editions

Don't miss

  • MCM logo
  • The following communiqué and Chair’s statement were issued at the close of the OECD Council Meeting at Ministerial level, this year presided by the Slovak Republic.
  • Food production will suffer some of the most immediate and brutal effects of climate change, with some regions of the world suffering far more than others. Only through unhindered global trade can we ensure that high-quality, nutritious food reaches those who need it most, Angel Gurría, Secretary-General of the OECD, and José Graziano da Silva, Director-General of the United Nations Food and Agriculture Organization, write in their latest Project Syndicate article. Read the article here.
  • Globalisation will continue and get stronger, and how to harness it is the great challenge, says OECD Secretary-General Gurría on Bloomberg TV. Watch the interview here.
  • OECD Secretary-General Angel Gurría with UN Secretary-General António Guterres at the 73rd Session of the UN General Assembly, in New York City.
  • The new OECD Observer Crossword, with Myles Mellor. Try it online!
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2019