Turkey has had a volatile few years, even by emerging market standards. An attempted coup in 2016 was followed by a currency crisis two years later, which in turn pushed the economy into recession early last year.
The country had barely recovered from that when the Covid-19 crisis hit, sending the economy into a tailspin yet again and prompting a series of increasingly erratic protectionist measures by local policymakers. That Turkey has nevertheless managed to avoid outright economic disaster so far is in large part due to the strength and resilience of its banking sector.
Forged in the heat of the 2001 banking crisis, Turkey’s leading private-sector lenders have long been among the strongest in emerging markets and favourites of international investors. Throughout the turmoil of the past five years, they have managed to remain well capitalized and highly profitable.
Stiff competition has also proved a spur to innovation. Digitally, Turkey is one of the world’s most advanced banking markets. Turkish banks are streets ahead of most of their peers in western Europe when it comes to mobile banking and broader customer experience.
Of the private-sector lenders that have led this banking renaissance, the standout performer has been, and continues to be, Akbank.
Turkey’s second-largest private-sector lender has not only consistently posted outstanding profitability and growth throughout the past decade, but in recent years it has also emerged as the country leader in digitalization, thanks to the early adoption of a mobile-first strategy.
Technological sophistication
Chief executive Hakan Binbasgil says technological sophistication is critical if banks are to meet the challenge from tech giants and other disrupters: “Customers are changing, and our main competitors are no longer just the banks on the other side of the street but also tech companies, fintechs etc. They are providing a different type of service to our customers, and those customers increasingly expect a similar service from banks.”
Akbank has also led the way in engagement with new market players. A pioneer of open banking in Turkey, in 2016 it launched an innovation centre in Istanbul to work with fintechs from across the globe on areas including artificial intelligence and payment systems.
Most of this digital development has been retail focused, but Akbank has not neglected its traditional corporate base. In 2017, the bank became the first in Turkey to implement international money transfers via blockchain in partnership with US fintech Ripple. The bank benefits from its stable shareholder base – it has been controlled since its launch in 1948 by the Sabanci family – and senior management.
We have been delivering banking services for 72 years and we have a very strong brand based on transparency, accountability and responsibility
Hakan Binbasgil
“We have been able to take a long-term view and make consistent investments even during challenging times,” says Binbasgil. He also points to the quality and diversity of Akbank’s people. University graduates comprise 95% of the workforce, of which more than 10% also have postgraduate qualifications. Women hold nearly a third of leadership roles and account for 53% of all employees. The average age of its staff is just 37.
“Everything starts from people,” says Binbasgil. “If you have good people, then you can have the best bank.”
Thanks to its digital prowess, Akbank was able to protect its staff by switching rapidly to home working when the Covid crisis hit Turkey in March, without impacting its operations.
Despite a 75% reduction in branch capacity, the overall volume of transactions handled by the bank remained stable, as uptake of digital services soared. By the end of June, Akbank’s recently relaunched mobile platform accounted for 70% of general purpose loan sales.
This helped the lender post strong first-half results. Net income was up by 8% year on year and return on equity remained in double digits, despite a jump in precautionary provisioning. Strong growth in wealth management, business loans and bancassurance also helped to offset new regulatory limits on fees from payments and money transfers.
Sound fundamentals
Whether Akbank can maintain growth and profitability over the coming months remains to be seen. As the pandemic rolls on, storm clouds are gathering over the Turkish economy and banking sector.
Turkish policymakers’ decision to burn through the country’s scarce foreign exchange reserves this summer in a bid to defend the lira, coupled with president Recep Tayyip Erdogan’s refusal to countenance increases in interest rates, has exacerbated the impact of external shocks.
Nevertheless, sound fundamentals – a healthy capital base, low leverage, a balanced loan book and tried and tested risk management – should bolster Akbank’s resilience to both local and global turbulence.
Perhaps the greatest testament to Akbank’s strength was its ability to refinance external debt even at the height of the Covid crisis. Not only was it able to roll over $605 million of international syndicated loans this spring but also to issue a $500 million Eurobond on July 1.
Binbasgil says this shows the faith that investors, as well as customers, have in the bank.
“You can have the best digital capabilities and excellent financial performance, but at the end of the day the most critical element in financial services is trust,” he says. “We have been delivering banking services for 72 years and we have a very strong brand based on transparency, accountability and responsibility.”
