Even in good times Turkey is vulnerable
WHILE BANKERS WORLDWIDE struggle through hard times and contemplate wide-scale redundancy programmes, their counterparts in Turkey remain ebullient.
This is despite clear troubles on the political front that have brought people onto the streets to protest about the future direction of the country, in the light of the appointment of a president with a strong Islamic conservative background. And despite conflicting views on the economy, the most pessimistic of which came from Standard & Poor’s, which revised its outlook on the country’s creditworthiness from stable to negative (see Even in good times Turkey is vulnerable, Euromoney, June 2008), the banking market remains buoyant.
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"Mortgage lending will be the main driver behind loan book growth"
Tanju Yuksel, Vakifbank |
Tanju Yuksel, general manager responsible for investors and international relations, at Vakifbank, gives a fair representation of the health of the banking sector, when he describes how his bank is aiming to expand its market presence, which already stands at 490 branches. "We are growing our bank network extensively," he says. "We intend to open 100 new branches this year, and our headcount will grow by 1,000 people."
Driving this growth is the continued surge in consumer lending and, at the vanguard of this, the boom in mortgage lending.
Early stages
The main factor fuelling the boom is the fact that the market is still new. "The history of retail lending in Turkey only goes back five or six years so it’s still at a very early stage compared with the EU or the US," says Yuksel. "Despite very fast economic growth, especially in 2003–05, mortgage lending to date is only 4% of GDP. It is probably 10 times bigger in other countries. So that is the biggest potential for the Turkish banking sector."
Yuksel says the bank’s loan growth last year was 30% and, following a successful first quarter this year, it estimates loan growth for the year as a whole of a further 25% to 30%.
Yapi Kredi Bank (YKB) chief executive Tayfun Bayazit says his bank is also enjoying good times in the market. "Our overall consumer loan business is growing very healthily, confirming positive results of regained commercial focus and an accelerated branch expansion plan," he says.
Bayazit says the bank is outperforming the market across several sectors. In the first three months of 2008 its consumer loan book (including mortgages, car loans and personal loans) grew by 19%. Its mortgage portfolio grew by 15% (versus sector growth of 10%), and car loans grew by 7%. The fastest growth in its consumer loan portfolio was registered in personal need loans, which grew by 31% (versus 11% growth in the market).
Akbank chief executive Zafer Kurtul adds to the rosy picture: "The first-quarter consumer loan growth was good," he says. "Total consumer loans went up from TL90 billion to TL100 billion ($81.45 billion) in the first three months – a 10% growth. Annualized that is close to 40%," he says. Again, for Akbank, mortgages are the highest growth area.
Credit cards
However, credit cards also offer great prospects for the banks. Vakifbank’s Yuksel says: "Mortgage lending will be the main driver behind loan book growth but it will also be supported by general consumer loans and credit card loans."
He says the potential for credit card business is clearly illustrated by low penetration to date. At present there are 36 million credit cards in the country held by only a small percentage of the population, who have at least three to four cards each. Only about 12 million people out of a population of 72 million have cards.
Hoping to tap this market, the bank is about to roll out its new co-branded credit card with YKB. For its part, YKB’s credit card business is growing steadily. "Growth in credit card outstanding balance is slower when compared with consumer loans," says Bayazit. "Since the start of the year, credit card receivables grew by around 3% in Yapi Kredi."
Pursuing the dream
Bayazit says there are several reasons for the growth of the business. "On the demand side, increasing income levels, increasing awareness in the public towards consumer loans, and lower interest rates in the first two months of the year [banks increased interest rates on consumer loans starting from March on the back of increasing inflation and expectations of a tighter interest rate policy by the central bank]," he says.
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"The markets are still easily open to us. We have no problem with funding"
Zafer Kurtul, Akbank |
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However, he says the growth in loans is not only a demand-pull phenomenon. "Innovations in the banking sector, mostly in consumer loans, rapidly growing branch networks of banks mostly in the medium-to-small sized cities and towns in Anatolia, and increasing focus of banks in consumer loans also increased the supply of loans in the last couple of years," he says.
Akbank’s Kurtul adds that penetration is still low in consumer lending. "The consumer loan-to-GDP ratio is 20% so there is room for substantial growth and the market is growing," he says.
As for the surge in mortgages, with them now making up one-third of consumer loans, he says, as in other countries, Turkish people want to pursue the dream of buying their own houses. This is helping to drive a huge housing demand. "Every year, there is a need for 500,000 new homes because of the demographic," says Kurtul. "The only issue is therefore stability, so the mortgage product makes this affordable, as long as interest rates remain at reasonable levels. This is the most critical issue."
On top of housing demands, general purpose loans are growing (at 65% in 2007). People are borrowing to buy white goods, furniture, vacations and, to a lesser degree, cars.
Good funding base
Given the global problems for banks seeking funding, there is another area where the Turkish banks are well off. Healthy levels of deposits have meant little need to resort to expensive fund-raising in the global money markets.