Turkey debate: Turkey looks towards global financial centre status

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Bankers discuss the progress made so far and the potential for Turkey to become a vibrant financial services hub.


Turkey debate: Participants

EXECUTIVE SUMMARY

• Much progress has been made since 2001 in improving Turkey’s financial sector

• But the dominance of banking in the financial sector needs to be reduced by diversification in other areas

• Consolidation of securities trading in one exchange is a big step forward

• The official Istanbul Financial Centre Initiative is well under way and yielding good results

• Attracting foreign investors and creating attractive conditions for foreigners to live and work in Turkey are crucial steps

• Turkey has good potential for becoming a regional hub for Islamic finance along the lines of Malaysia

Elliot Wilson, Euromoney In the light of the creation of a single securities exchange in April, the Borsa Istanbul, is Turkey destined to become a regional or global financial hub?

MY, Borsa Istanbul Istanbul is destined over the long term to become a global financial centre, thanks to the many steps we have taken to improve our financial markets. A lot of hard work has been done over the past decade and more, stretching back to our financial crisis in 2001, when we started restructuring our financial sector, creating a resilient banking system as good as any in the region or across the emerging countries. The main challenge for us still, though, is that the financial sector remains dominated by banking. In other countries the financial industry is far more diverse, encompassing capital markets, insurance companies and so on. Look at London or New York, where the capital markets played a vital role in turning those cities into global financial players. That’s why we passed a new law enhancing and expanding our capital markets and, in April, we brought all exchanges together under one roof at the Borsa Istanbul, including the Istanbul Gold Exchange and the Turkish Derivatives Exchange. We now want to turn the bourse into a global financial player. When you compare global financial exchanges by their sheer size, you can see how fast the Borsa Istanbul is growing. Also, to improve our performance, we have been listening and talking to the global best in class, including Nasdaq OMX, NYSE Euronext, London Stock Exchange, Deutsche Börse and the Chicago Mercantile Exchange. We opted to enter a strategic partnership agreement with Nasdaq OMX, and are actively engaged in bringing in investment from new shareholders, including sovereign wealth funds. This proves how much trust there is in Turkey and in Turkey’s financial sector. Just to prove it, I should say that according to the Global Financial Center Index, Istanbul was ranked as 57th in March, but was 44th in September. This shows our progress.

Euromoney Lets turn to the Istanbul Financial Centre Initiative (IFC-I), the long-term plan to boost Turkey’s financial competitiveness. How is that project going?

KR, Akbank The government’s strategic action plan on the IFC-I was published in October 2009, so the project has been under way for four years and has progressed a lot. Borsa Istanbul officials and related ministries are working in harmony to improve the financial system’s legal and administrative infrastructure, working alongside public-sector and private-sector players as well as academics and NGOs. The next key stage on our roadmap is to improve the state of our judicial infrastructure. Also, our financial system is mostly dominated by banks, which is common for an emerging market nation, but we need to enhance and expand the financial sector further, creating and attracting insurance firms, leasing companies and pension funds in order to deepen and broaden our capital markets. The tax system is also central to our future: we need to further simplify our tax structure. Our physical infrastructure is of course a must. We’ve got great telecoms connectivity, and a highly educated and literate workforce, but we need to improve our transport system. And we need to continue to promote Istanbul as an international financial centre. A lot of progress has already been made, notably with our new commercial code, enforced in July 2012, which is revolutionizing how business is done here. Bilateral tax and trade treaties have been signed with many countries; a new capital market law has been introduced; the futures and options market is developing; the pension system is becoming increasingly diversified; and the Borsa Istanbul is increasing the depth and attractiveness of Turkey as a regional financial market. We are also starting to see the increased prevalence of sukuk as Islamic finance starts to take off. All of this is underpinned by a reliable and simplified tax code: our corporate tax rate is now akin to that of most European peers at 20%.

Euromoney Mr Kocabalkan, how are you looking to educate foreign investors about the Borsa Istanbul and about the benefits of becoming important players in Turkey’s financial sector?