Bankers in Istanbul reel at $620 million fine

By:
Dominic O’Neill
Published on:

Competition Board rules on rate fixing; new curbs on consumer lending expected.

After a more relaxed policy environment last year, the Turkish authorities seem to be stepping up the pressure on the local banking sector again.

The Competition Board, based in Ankara, slapped fines on 12 of the country’s biggest banks last month. It followed an investigation begun in late 2011 into allegations that banks colluded on setting rates for consumer loans and deposits.

Turkey’s biggest state and private banks were affected, including Akbank, Halk Bank, Isbank, Vakifbank, Yapi Kredi and Ziraat. Garanti, which received the largest fine, is contesting the decision, according to Reuters.

In reaction, the Banks Association of Turkey, based in Istanbul, said the Competition Board had not considered the specific nature of the banking sector: an argument some but not all sections of the government have taken too.

Ali Babacan, deputy prime minister in charge of the economy, supported the rate-fixing investigation when it was launched. Last month, however, he reportedly said competition rules for banks might need to be changed.

The association’s statement said: “The board decision is far from reflecting the truth, inconsistent and unfair. [...] Therefore, it has created a lack of confidence in the sector.”

The fines – which total the equivalent of around $620 million, according to Reuters – were lower than some market participants had feared. But it was still the highest the body has ever imposed on the sector.

Alpay Dinckoc, an analyst at Oyak Securities, points out that the relatively large size of the fines and the accompanying political noise also came after banks had announced healthy profits in 2012. “You wonder if it’s a tax or a fine,” he says.

Nilufer Sezgin, chief economist at Erste Securities in Istanbul, says the fines – which focused on credit cards – have arrived as the banking regulator might introduce new provision requirements on consumer loans, as in 2011.

After more growth-orientated policies from last summer, the central bank has tried to slow loan growth this year by increasing cash reserve requirements even while lowering rates, repeating controversial 2011 policies.

The central bank says the unorthodox policy mix is necessary to stem hot-money flows into Turkey. Yet the central bank measures implemented this year have not yet caused banks to tighten credit standards, says Sezgin.

“At the moment you’re seeing higher growth from banks in the consumer segment, and in the eyes of the regulators that’s less tolerable for financial stability,” she says.