Metin Munir
So far the new Banking Regulation and Supervisory Agency (BRSA) has cautiously protected foreign creditors by choosing the vastly more costly route of taking over banks rather than liquidating them.
But, as officials privately warn, this will not go on forever. Once the Agency becomes established and the new ground rules are understood by everyone, banks will either sink or swim – with all their liabilities outside private saving accounts.
According to BRSA officials: “There may be other weak banks in the system but we hope to keep them outside the agency. When the supervisory mechanism is securely in place and so long as there is no ill intent, fraud or corruption in the picture, the agency will work with the existing management at these banks to restore their financial health.”
Says another source: “There is no doubt that the agency and its staff command much respect in the banking community and they inspire much confidence. Our findings suggest that we can rely on the experience and integrity of the Board.”
But it is not totally for the love of foreign banks that Turkey has been taking over the failed banks. Some 30 foreign relationship banks which have stuck with Turkey through thick and thin are able to roll over loans of around $5 billion annually.
“Given its borrowing capacity, financing needs and dependence on foreign capital, the Turkish government is simply not in a position to take this lightly and is expected to continue supporting the financial sector in the period ahead,” says one foreign banker.
The law allows the agency two courses of action. It can assume ownership, allowing the bank to function under its original licence under a new management team with an objective to strengthen the bank’s financial position.
At this point, the bank becomes a legal entity of the Turkish government which becomes fully responsible for the bank’s entire assets and liabilities. Or it can assume management and liquidate the bank’s assets under Turkish bankruptcy proceedings.
The agency, led by the appropriately named Zekeriya Temizel (his surname translates as “Clean Hand”), has opted for the former course although it is not obliged to oVer coverage for the entirety of a bank’s liabilities beyond the mandatory insurance of retail deposits of up to TL100 billion ($147,000).
Commercial and corporate deposits, trade obligations and other liabilities are not covered. However, by absorbing the banks rather than sinking them the agency has effectively transformed them into government entities. “And all their obligations carry the full faith and credit of the Turkish government,” as a US banker puts it.
“Legally, the new banking law has not changed the way foreign obligations are treated in the event a bank becomes insolvent or unable to meet its obligations,” she says. “Pre-agency, foreign creditors looked to the Turkish bureaucracy, which was heavily influenced by political factors, whereas now their counterpart is an independent official body acting in the interests of the financial system when deciding the fate of a financial institution.”
The last two banks to come under the tutelage of the BRSA, were Etibank and Bank Kapital. The former, number 20 by asset size, was owned by a powerful media concern. The latter, number 41, was owned by a large construction concern with good political connections.
In the pre-agency days the media was untouchable and good political connections were everything. But that phase, at least for the time being, seems to have come to an end. Although it has only been in existence since the beginning of September the BRSA has already won market confidence.
“The BRSA is the culmination of the regulatory, supervisory and control functions of the Turkish Treasury and the Turkish Central Bank, with one very important difference,” says one US banker. “We’re inclined to believe that they will strictly adhere to their mission.
The agency is rehabilitating the banks in its custody and plans to sell them at a generous discount accompanied by a serious tax incentive plan. Those which cannot be sold will be merged and the rehabilitation process will continue until a buyer is identified.
Once a bank is taken in custody it cannot at some later point opt for liquidation. “Consequently, in the banks to which we have exposure, we are effectively carrying government risk,” says the banker.
