The Turkish Banking

System before 2001

crisis

INTL- 410
FALL 2016

1
 introduction
• Banking became such an integral part of politics
that it has been at the centre of the
establishment and collapse of governments in
Turkey (e.g., vote of confidence for government
in 1997/collapse of the government in 1998).

• State and some of the private banks had been

indirect sources financing political system in
Turkey (e.g., crony capitalism).
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 Turkish version of the ‘‘crony capitalism’’ in the
banking sector has flourished under the following
conditions
• : (1) ‘‘Public banks have created major distortions in the sector
because of their large size and their abuse for political rent
distribution purposes’’ (OECD, 2002, p. 80);

• (2) ‘‘Bank entry and exit was highly politicized. The granting of bank
• licenses was based primarily on political criteria during the 1990s’’
(OECD, 2002, p.
• 80);

• (3) ‘‘Tax policies and accounting procedures reinforced the

channeling of resources to government, while preventing corporate
governance practices which underpinned distortions in the
allocation of private sector credit’’ (OECD, 2002, p. 78);

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 Turkish version of the ‘‘crony capitalism’’ has flourished under
the following conditions (cont)

• (4) ‘‘An ineffective bankruptcy law and court system also were not conducive to
• quick restructuring efforts (it took 8 years to liquidate the banks taken over after the 1994 crisis)’’
(OECD, 2002, p. 80);

• (5) ‘‘Deficiencies in internal control and risk management in banks are compounded by weakness in
the supervisory and regulatory framework’’ (OECD, 2002, p. 79);

• (6) ‘‘[The Savings Deposit and Insurance Fund’s] ineffectiveness was highly constrained inter alia by
an inefficient asset recovery process [coupled with the creation of a Banking Regulation and
Supervision Agency] which became operational too late to prevent the banking crisis from
• erupting late 2000’’ (OECD, 2002, p. 80);

• (7) ‘‘failure to limit moral hazard problems arising from full deposit insurance imposed after the
1994 crisis’’ (OECD, 2002, p. 80).

• (8) Corrupt ‘connected lending’ activities by some of banks which have organic ties with some of
real sector firms .

• Source: Organization for Economic Cooperation and Development. (2002). Economic survey –
Turkey. Paris: OECD Publications Service.

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 Number of banks
1980 1990 1999 2000
Commercial Banks 31 54 62 61
State 8 7 4 4
Private 19 25 31 28
Foreign 4 22 19 18
SDIF - - 8 11
Invest. & Dev. Banks 6 10 19 18
State 4 3 3 3
Private 2 4 13 12
Foreign - 3 3 3
TOTAL 37 64 81 79

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 Open positions (note: The following charts on the Turkish banking sector
are based on a presentation by Ceyla Pazarbasioglu, the then vice-president of BRSA, in 2003.)
2000
-1 152
0 140 110 321 252 122
-86 -334 -394
-954 -1049 -341 -454 -114
-2000 -991
-1487
-2056
-4000

-6000

-8000

-10000 -8960

-10674
-12000
June 02

Dec. 02
Nov. 00

March 02

aug. 02

Jan. 03

March 03
June 01

Dec. 01
Feb. 01

On-balance sheet positions Net Position

6
 60
High crowding out by government
53,7
55
50 47,0
42,5
45 40,8
40
35,0
Percentage

35 30,6
30
22,8
25 21,4 20,0
20
15 10,3 10,6
10 6,4
5
0
1980 1990 1995 2000 2001 2002

Securities / T. Assets Loans /T.Assets

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 Turkey has oligopolistic market in
banking sector
Graph 1: Concentration Ratio of 5 Largest Banks (%)

75,8
80
70 59 57,7
60
50
40
%

30
20
10
0
EU Average Candidate Turkey
Countries Average

2001

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High government crowding-out
Graph 16: Debt Securities / Total Assets

Turkey 34,5

European
21,68
Union

0 10 20 30 40

9
Low financial intermediation in Turkey
Graph 8: Financial intermediation indicators

500 474
450
400
350
300
250
%

186 167
200
150 117
94 83
100 61 57
50 19
0
Assets/GDP Deposits/GDP Loans/GDP
2001
EU Average Candidate Countries Average Turkey
10
 State owned banks held 1/3rd of total
assets
Graph 2: Public Share (%)

33
35
30 24
25
20
%

15 10
10
5
0
EU Average Candidate Turkey
Countries Average

2001

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 Initial cost of the crisis
BillionUSD Ratio to GDP (%)
State Banks Duty Losses 19.0 12.8
Capital Support to State Banks 2.9 2.0
Resolution of SDIF banks 21.7 14.9
-Public Resources 17.0 11.7
-Private Resources 4.7 3.2

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