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At the start of the decade, the sweet spot for Turkey’s banks was unquestionably retail lending. Margins were high, growth was stellar and consumer appetite seemingly insatiable. Then in 2013, alarmed by rising household leverage, the Turkish government clamped down hard on the segment, bringing the party to an end and leaving banks searching frantically for a new source of growth and profits.
With limited opportunities in the highly competitive corporate segment, attention turned to small and medium-sized enterprises, a large and under-banked sector. In 2012, SMEs made up 99% of all corporate entities in Turkey, employed three quarters of the country’s workforce and produced 55% of total revenues. Nearly 40%, however, had no bank debt of any kind, an enticing prospect for lenders with ample access to liquidity.
Lending to smaller companies also offered much more attractive returns than were available from their larger counterparts, as well as the opportunity to grow other lucrative business lines. “Underlying spreads on SME loans are at least 200 basis points to 300bp higher than those on commercial and corporate loans,” says Bulent Sengonul, head of research at Turkish investment bank Is Yatirim.
