Turkish Banking Sector Analysis INTRODUCTION The banking sector constitutes the greater part of the Turkish financial system. Banks carry out a great portion of the activities taking place in both money and capital markets. The share of the banking sector in the financial system as of the end of March 1997 was 71 %. Turkey’s financial system and its banking sector are virtually synonymous as a consequence of the country’s economic and historical development. There are a number of factors that give banking its prominent role in Turkish economy.
These are: ? The economic structure peculiar to Turkey. ? The choice to turn resources into long-term investments through banks for the aims targeted in the development plans and programmes, and the establishment of banks by the state to finance certain sectors. ? The extensive application of continental European banking practices as a model in the legal structure of the banking system, and an emerging capital market that can compete with the banking sector in the forthcoming years. BACKGROUND The development of the Turkish banking sector may be divided into six periods which differ as to policy and method: The Period of the Money-Changers and the Galata Bankers (pre-1847): During this period, all quasi-banking activities were carried out by money-changers The Galata bankers consisted mostly of the ethnic-minorities in Istanbul. The Period of Foreign Banks (1847-1908): Since the financial situation of the Ottoman Empire deteriorated after the Crimean War, the Empire faced the need for external financial support.
Representatives of several foreign banks arrived with the aim of extending credits to the empire at high interest rates. The Ottoman Bank (Osmanli Bankasi) was established in 1856. Its head office was in London and it served as a Central Bank until the 1930’s. Development of National Banking and Implementation of Etatism (1909-1944): The years following the proclamation of the Second Constitution (1908) gave rise to the national banking movement which was a reaction to foreign banking. Twenty-four national banks were established in Istanbul and Anatolia between the years 1908 and 1923. However, foreign banks continued to dominate banking activities due to consecutive wars (1911-1922), capitulations granted foreigners and the scarcity of national capital.
In 1923, the first National Economic Congress was held in Izmir. It dealt with a large number of economic problems that the country would have to solve. The Congress took the decision that banks would be established to finance the main sectors of the economy. T.Is Bankasi(1924), Sanayi ve Maadin Bankasi (1925), and Emlak ve Eytam Bankasi (1927) were established to provide commercial, industrial and housing credits, respectively. However, the negative effects of the Great Depression on the balance of payments and lack of domestic capital called for a government-supported economic development policy in subsequent years.
As a result of this policy, six state banks were established in the 1930s, including the Central Bank of the Turkish Republic. Development of Private Banks (1945-1960) Despite the adverse effects of the Second World War, a significant growth rate and industrialisation were achieved with the support of the newly-established state banks. This created a tremendous increase in the capital stock of the private sector. Beginning in the early 1950s, etatism weakened because of positive developments in the private sector, expansion of international co-operation and transition to a multi-party political system. A more liberal and private sector-oriented policy was adopted in the following years, and as a result, more than 30 private banks were established before 1960. Planned Development Period (1961-1979) A new planned development policy was adopted in the beginning of the 1960s.
According to this system, the state would administer the economy and issue recommendations to the private sector through five-year plans prepared by the government to cover all sectors. As recommended in the plans, several development and investment banks were established to finance various sectors in the 1960s and1970s: For example Turizm Bankasi in 1960, S.Y.K.B. in 1963, DevletYatirim Bankasi (Eximbank) in 1964, Devlet Sanayi ve Isi Yatirim Bankasi (Trkiye Kalkinma Bankasi) in 1975. Liberalization and Internationalization in Banking (post-1980): The new liberal economic policy implemented in January 1980 aimed at integration with world economy by establishing a free market economy. As a reflection of this policy, the 1980s witnessed continuous legal, structural and institutional changes and developments in the Turkish banking sector. During these years, a series of reforms were undertaken to promote financial market development.
The main aim of these reforms was to increase the efficiency of the financial system by fostering competition among banks. In this context interest and foreign exchange rates were liberalized, new entrants to the banking system were permitted and foreign banks were encouraged to operate in Turkey. Turkish banks intensified their business relations abroad either by purchasing banks in foreign countries or by opening branches and representative offices. The liberalization of foreign exchange regulations increased foreign exchange transactions of the banks. Beginning in 1984 special finance houses, transacting business according to Islamic banking principles, also became part of the financial system. The Interbank Money Market which is administered by the Central Bank was established in 1986 with the aim of regulating liquidity in the banking system.
A unified accounting plan and accounting principles as well as a standard reporting system were adopted for banks in the same year. External auditing of the banks in accordance with internationally-accepted accounting principles was implemented in 1987. In addition, legal and institutional arrangements were introduced to foster the development of the capital market. As a result, banks began to provide additional services such as negotiating security issues and trading in securities, underwriting fund management, establishing mutual funds and financial consultation. As for developments in the banking industry, in the 1980’s there was diversification in the services offered by banks, the technological infrastructure of the banks was improved by extensive use of computer systems, hi-tech payment systems and the sector began employing more qualified human resources, and at the same time there was more emphasis placed on training programmes.
THE STRUCTURE The Turkish financial system is basically a universal banking system which enables commercial banks to operate in all financial markets. However, recently, a new regulation regarding capital markets has banned banks from acting as intermediary institutions in the Istanbul Stock Exchange and from acting as dealers in share trading. Commercial banks are neither allowed to trade in goods or real estate nor engage in financial leasing activities as lessor. On the other hand, investment and development banks are not allowed legally to collect deposits but may engage in financial leasing services. Nearly half of the assets of the Turkish banking system is controlled by state-owned banks.
Even though the number of state banks was only 8, their share in the total assets of the system as of September 30, 1997 was 41.8 %. Very recently, as of March 1998,Etibank, a former state deposit bank was privatised which further reduced the number of state-owned banks in the system to 7 as well as their share in the total aggregates. A further decrease in the share of state banks is expected for privatization procedures are being carriedout. There is no local bank and all banks are multibranched. Most commercial banks have ownership links with non-financial corporations. Holding companies or large conglomerates control the ownership and management of some banks and also of industrial corporations.
There are also financial conglomerates where the banks act as parent companies. Banks do not face stiff competition from other financial institutions. Most of the insurance and leasing companies are affiliated to banks. The other main characteristic of the banking sector is the high degree of concentration. The total assets of the five largest banks amount to 47.1% of the total assets of the banking system.
At present, there are 72 banks operating in Turkey, apart from the Central Bank, 13 of which are investment and development banks, and the remainder, commercial banks. Five of the commercial banks and three of the development and investment banks are state-owned. The total number of foreign banks operating in Turkey is 22.Eleven of these were founded in Turkey as joint stock companies with foreign capital, while the remaining 11 are simply branches of foreign banks founded abroad. Despite their small market share, foreign banks have an important place in the Turkish banking system because of the new concepts and practices they have introduced. Particularly in the last decade, foreign banks have brought competition into the banking industry as well as a more dynamic structure. Turkish banks have been developing strategies to abandon unprofitable services and activities, adopt new products and increase their profitability and competitive strength through better control of operating costs.
As of September 30, 1997 banks in Turkey had a total of 6,591 branches (6,572 domestic and 19 foreign) of which 2,884 (2,876 domestic and 8 foreign) belonged to state-owned banks. Since the attractiveness of collecting deposits has increased parallel to the structural changes in the banking sector and Turkish economy during recent years, banks have started to increase the number of their branches by opening new branches to engage in retail banking activities such as collection of deposits and consumer credits. As of the end of September 1997, there were 19 branches, 62 representative offices of Turkish banks abroad and the number is continuously increasing. In addition, as of the end of 1996, Turkish banks had participated in 48 financial institutions (mostly banks) abroad. The main items of the aggregated balance sheet of the Turkish banking sector as of September 30, 1997 are shown below (in billion TL, not including branches abroad): – Total Assets 15,000,761 – Net worth 948,919 – Deposits 9,299,772 in TL 4,824,956 in FX 4,474,816 -Loans 6,323,225 in TL 3,354,363 in FX 2,968,862 -Trading Securities Portfolio 1,702,981 – Participations 68,058 -Affiliates 126,819 – Long-Term Investments 128,567 -Total Profits 400,942 In the total assets of the banking sector, the state banks share amounts up to 41.8% while the share of foreign banks is only 5.9%. ASSETS (TL.
BILLION) – Cash Items 296,241 – Financial Institutions 1,801,550 – Securities Portfolio 1,702,981 – Loans 6,323,225 – Non-Performing Loans (Net) 61,860 – Reserve Requirements 757,862 – Participations, Affiliates ————– Long Term Investments 323,444 – Fixed Assets 411,482 – Other Assets 1,255,542 – Total Assets 15,000,761 LIABILITIES(TL. BILLION) – Deposits 9,299,772 – Saving Dep. 2,728,522 – Certificate of Dep. 629 – Official Dep. 374,127 – Commercial Dep.
578,674 – Banks Dep. 888,082 – Other Dep. 254,922 – Foreign Exchange Dep. 4,474,816 – Acquired Loans 1,926,931 – Securities Issued 163,488 – Other Borrowed Funds 484,489 – Other Liabilities 818,973 – Net worth 948,919 – Total Profits 400,942 – Total Liabilities 15,000,761 – Off-Balance Sheet Obligations 14,513,031 – Guarantees and Indemnities 4,720,274 – Commitments 3,615,876 – Interest and FX Related Transactions 6,176,881 ? Deposits are the most important source of funds for banks. State banks collect 39.7% of total deposits while private banks collect 60.3%. ? Loans have the highest share in assets.
State and private banks supply 42.3 and 57.7% of total loans, respectively. ? 81.4% of the banks’ securities portfolio consists of public sector securities such as treasury bills, government bonds and revenue-sharing certificates issued to fulfil the funding requirement of the public sector. ? The participation of banks in non-financial institutions comprises some 44.3% of their total participations. ? As of the end of September 1997, the shares of investment and development banks, state deposit banks, private deposit and foreign deposit banks in total profits were 9%, 14%, 68%, 9%, respectively. However, when their profits are compared with their assets, it is observed that the profits of the private banks are much higher than that of state banks. ESTABLISHMENT RULES The establishment of a bank depends on the authorisation of the Council of Ministers.
For a new bank to be established, it must be a joint-stock company and have a minimum of a total TL 6 trillion of paid-up capital. Privately owned banks may open up to 10 new branches a year provided that financial standing is satisfactory. Opening up more than 10 branches, is subject to the approval of the Undersecretariat of the Treasury. On the other hand, state-owned banks should obtain approval from the Undersecretariat of the Treasury to open branches. The legal framework concerning the functioning of foreign banks in Turkey is the same regulation which applies to domestic banks. Foreign banks can operate in Turkey, either by establishing a branch or subsidiary or entering a joint venture with a bank established in Turkey. They may as also acquire the shares of an already established bank. The first branch of foreign banks may be opened with permission granted by the Council of Ministers.
Foreign banks must bring their capital allocated to Turkey in foreign exchange. The minimum capital requirement is the same as that for establishing a bank in Turkey. A reciprocity provision is also in force with respect to the operations of foreign banks. This provision allows the Council of Ministers to take counter measures if the conditions in any of the countries in which Turkish banks operate are changed unfavourably. LEGAL FRAMEWORK AND SUPERVISION OF THE BANKING SYSTEM All banks in Turkey are subject to the 1985 Banking Law No: 3182 and to the provisions of other laws pertaining to banks. Banks are institutions in which funds accumulating in the economy are collected mostly as deposits and channelled to investors.
This makes public supervision of banks necessary. Banks in Turkey that have the status of joint-stock companies are subject to the general scope of controls under the provisions of the Turkish Commercial Code and of various tax laws. State banks are also subject to audits by the Supreme Audit Board. Besides, banks are subject to special supervision by the Undersecretariat of the Treasury and the Central Bank of the Republic of Turkey. As the representative body of the banking sector, the Banks Association of Turkey aims at protecting and promoting the professional interests of its members.
The Undersecretariat of the Treasury supervises the banking sector within the framework of the provisions of its own governing statute as well as of the Banking Law. The Undersecretariat of the Treasury exercises its supervisory authority in a direct and ongoing basis through the Board of Certified Bank Auditors. In other words, these auditors are responsible for on-the-site examination of banks in terms of legal considerations and financial soundness. The Central Bank is responsible for monitoring and supervising the banking sector within the framework of authority that is granted by its own Act. The Central Bank’s supervision of the banks’ financial structure is an off-the-site monitoring process which depends on financial tables and documents.
Additionally, the banks’ financial statements are audited by independent auditing firms in accordance with the principles of accounting which have been nationally and internationally accepted. Banks are also examined by their own auditors appointed by the general assembly, who are required to submit quarterly reports to the Undersecretariat of the Treasury. In recent years, the supervisory system has been further strengthened by a number of measures taken in accordance with the standards of the prudential regulation exercised by the international banking community. In this context, Principles for Capital Adequacy described in Communiqu No.6 went into effect in October, 1989, to reduce the risk arising from inadequacy of capital in banks. Some articles of this communiqu were amended in April 1993. With sufficient equity resources, banks would be able to cover their risks in conformity with international standards.
Communiqu No.6 was amended by Communiqu No.12 issued in February 1995. Under this regulation, capital adequacy principles comply with international standards. On March 1, 1995 a new communiqu went into effect to regulate the foreign exchange exposure risks of banks. According to the regulation, banks are not allowed to keep foreign exchange positions exceeding (+,-) 50% of their capital base. Another brand new Communiqu regarding the principles of consolidation of financial statements of banks issued in May 1997 requires that the banks which are ‘the parent company in a group of financial institutions’ that hold the controlling power over the financial companies in the group or hold significant influence over these companies should prepare consolidated financial statements merging all on and off balance sheet accounts as well as the profit and loss statements of these companies, under those of the parent bank.
Decree on Provisioning of credits issued in January 1998 require sufficient reserves for bank loans in default, and provided more control over non-performing loans by classifying them according to the collateral provided against these loans by requiring a higher level of provisioning for loans with lower quality of collateral. The Decree amended the former one which was enacted in 1988, the new decree incurring more clearly defined principles regarding the classification of overdue loans and provisioning. BANKS OPERATING IN TURKEY (As of January 1, 1998) THE CENTRAL BANK OF THE TURKISH REPUBLIC I. DEVELOPMENT AND INVESTMENT BANKS STATE BANKS DATE OF ESTABLISHMENT Iller Bankasi 1933 Trkiye Ihracat Kredi Bankasi 1963 Trkiye Kalkinma Bankasi 1975 PRIVATE BANKS T. Sinai Kalkinma Bankasi 1950 Birlesik Yatirim Bankasi 1988 Park Yatirim Bankasi 1992 Sinai Yatirim ve Kredi Bankasi 1962 Tat Yatirim Bankasi 1992 Tekfen Yatirim ve Fin.B 1988 Takasbank 1995 FOREIGN BANKS ESTABLISHED IN TURKEY Indosuez Euro Trk Merchant Bank 1989 Bankers Trust 1988 Taib Yatirim Bank 1987 II. COMMERCIAL BANKS STATE BANKS T.C.Ziraat Bankasi 1863 Trkiye Emlak Bankasi 1927 Trkiye Halk Bankasi 1938 Trkiye Vakiflar Bankasi 1954 PRIVATE BANKS Adabank 1985 Akbank 1947 Alternatifbank 1991 Anadolubank 1997 Bank Ekspres 1992 Bank Kapital 1985 Derbank 1958 Demirbank 1953 Denizbank 1997 Egebank 1928 Eskisehir Bankasi 1927 EGS Bank 1995 Etibank 1935 Finansbank 1987 MNG Bank 1985 Iktisat Bankasi 1927 Interbank 1888 Kentbank 1992 Ko Bank 1985 Milli Aydin Bankasi 1913 Oyakbank 1984 Pamukbank 1955 Sitebank 1991 Smerbank 1933 Sekerbank 1953 Tekstil Bankasi 1986 Toprakbank 1992 Trk Dis Ticaret Bankasi 1964 T.Ekonomi Bankasi 1927 Trk Ticaret Bankasi 1913 Trkiye Garanti Bankasi 1946 Trkiye Imar Bankasi 1928 Trkiye Is Bankasi 1924 Trkiye Ttncler Bankasi 1924 Yapi ve Kredi Bankasi 1944 Yurtbank 1992 FOREIGN BANKS ESTABLISHED IN TURKEY Arap-Trk Bankasi 1977 Birlesik Trk Krfez B.
1987 BNP-AK Dresdner Bank 1985 Midland Bank 1990 Osmanli Bankasi 1863 Trk Sakura Bank 1985 Turkish Bank 1982 Ulusalbank 1985 III. FOREIGN BANKS OPERATING THROUGH BRANCHES Bank Mellat 1982 Banca di Roma 1911 Citibank N.A. 1981 Credit Lyonnais 1988 Habib Bank 1983 ABN AMRO Bank 1921 Kibris Kredi Bankasi 1989 Societe Generale S.A. 1989 The Chase Manhattan Bank 1984 Westdeutsche Landesbank A.G. 1985 ING Bank 1997 Number of Banks Operating In Turkey 1970 1980 1990 Dec.1999 Commercial banks 44 40 46 62 State-owned banks 12 12 8 4 Privately banks 27 24 25 38 Foreign banks 5 4 23 19 Inv. and dev.
banks 2 3 10 19 Total 46 43 66 81 Turkish Banks Operating by Opening Branches Abroad AUSTRIA Wien T.Vakiflar Bankasi BAHRAIN Yapi ve Kredi Bankasi Pamukbank BELGIUM Brussels Central Bank T.C.Ziraat Bankasi T.Halk Bankasi FRANCE Paris Central Bank T. Emlak Bankasi GERMANY Aachen Augsburg Berlin Bonn Braunschweig Bremen Duisburg Dusseldorf Essen Frankfurt Gelsenkirchen Hamburg Hannover Kassel Koln Mannheim Munchen Nurnberg Stuttgart Wuppertal T.Vakiflar Bankasi T.Vakiflar Bankasi Central Bank T.C.Ziraat Bankasi T.Halk Bankasi T.Emlak Bankasi T.Vakiflar Bankasi Pamukbank Yapi ve Kredi Bankasi T.Emlak Bankasi T. Tutunculer Bankasi T.Emlak Bankasi T.C.Ziraat Bankasi Yapi ve Kredi Bankasi T.Emlak Bankasi Yapi ve Kredi Bankasi T. Garanti Bankasi Akbank Central Bank T.C.Ziraat Bankasi T.Vakiflar Bankasi T.Emlak Bankasi Akbank Turk Ticaret Bankasi T.Tutunculer Bankasi Yapi ve Kredi Bankasi T.Is Bankasi T.C. Ziraat Bankasi T.Halk Bankasi Akbank T.C.Ziraat Bankasi Akbank Pamukbank T.Halk Bankasi T.C.Ziraat Bankasi T.Halk Bankasi Pamukbank Sekerbank T.Imar Bankasi Yapi ve Kredi Bankasi T.Emlak Bankasi Pamukbank T.C.Ziraat Bankasi T.Emlak Bankasi T.Halk Bankasi Akbank Yapi ve Kredi Bankasi Pamukbank T.C.Ziraat Bankasi T.Halk Bankasi Yapi ve Kredi Bankasi Akbank Yapi ve Kredi Bankasi IRAN Tehran Pamukbank LUXEMBURG Luxemburg T. Garanti Bankasi MALTA Malta T.Garanti Bankasi The NETHERLANDS Amsterdam Den Haag Rotterdam T.Halk Bankasi T.Is Bankasi T.C. Ziraat Bankasi T.Emlak Bankasi T.Garanti Bankasi Akbank Federation of RUSSIA Moscow Iktisat Bankasi T.Garanti Bankasi Yapi ve Kredi Bankasi SWITZERLAND Geneva Zurich T.Garanti Bankasi T.
Is Bankasi T.Halk Bankasi TURKISH REPUBLIC OF NORTHERN CYPRUS Gazimagosa Girne Guzelyurt Lefkosa T.C.Ziraat Bankasi T.C. Is Bankasi T.C.Ziraat Bankasi T.Is Bankasi T.C.Ziraat Bankasi T.C. Ziraat Bankasi T.Is Bankasi T.Halk Bankasi UNITED KINGDOM London Central Bank T.C. Ziraat Bankasi Akbank T.Is Bankasi Yapi ve Kredi Bankasi UNITED STATES OF AMERICA New York Central Bank Vakiflar Bankasi T.C. Ziraat Bankasi Yapi ve Kredi Bankasi Turkish Banks Abroad (1995) Name Country Arab Financial Services Company Bank Kreiss AG. Bahrain Germany Deutsch Turkish Bank AG.
Express Trade Bank (Berlin) GmbH Germany Germany Is Bank GmbH Banque International de Commerce SA. Germany France Banque du Bosphore United Garanti Bank Int. N.V. France The Netherlands Demir-Halk Bank (Nederland) N.V. Finansbank Holland N.V. The Netherlands The Netherlands FB Finansbank Suisse S.A.
Doc Finance S.A. Switzerland Switzerland Sabanci Bank P.L.C. Macaristan-Halk Bank UK Hungary Russian-Turkish Bank Yapi Toko Bank Federation of Russia Federation of Russia Kazakhstan International Bank Kazkommerts-Ziraat International Bank Kazakhstan Kazakhstan Inter Overseas Ltd. Inter Capital Ltd. Islands Islands Turk Boston Bank Europe Ltd. Uzbekistan-Turkish Bank Ireland Uzbekistan Turkmen-Turkish Int.Comm. Bank. Uluslararasi Turkmen-Halk Kalkinma Bankasi Turkmenistan Turkmenistan World Vakif OffShore Banking Ltd. Cyprus Vakiflar BankasiLtd.
Northern Cyprus Northern Cyprus The Euro Textile Bank Ltd. Sekerbank OffShore Ltd. Northern Cyprus Northern Cyprus Atlasbank OffShore Ltd. Northern Cyprus Capital Markets Financial liberalization attempts in the last decade and a half have promoted the development of capital markets. The main objective of this effort was to make the financial system more efficient by providing an alternative to banks for both the corporate sector and households via the introduction of direct finance. The Capital Markets Law, enacted in 1981 and amended in 1992, regulates the primary and secondary markets, and designates the institutions and financial instruments.
The CMB was established to supervise and regulate capital markets. All publicly held companies are under the supervision of CMB, which is responsible for granting permission to issue securities, to authorise new financial intermediaries other than banks, and to authorise the establishment of investment companies. The total value of outstanding securities increased from 10.1 percent of GNP in 1986, to 33.9 percent of GNP by 1995. However, much of the increase is due to the rapid rise in government borrowing by issuing T-bills and bonds. The proportion of public borrowing in capital markets was 88.7 percent of all securities issued in 1995. Private sector issues account for only 11.3 percent in that year.
The composition of private sector issues point out another weakness of capital markets in fulfilling the function as a source of direct finance for corporations. Between 1992 and 1995, 62 percent of all private issues were asset-backed securities issued by banks, and 28 percent were common stock issues of corporations. The shares of corporate bonds and commercial paper were negligible. It would not be wrong to say that private firms were crowded out of the bond market as a result of growing government borrowing to finance the fiscal deficit. Another important milestone in the development of capital markets was the establishment of the Istanbul Stock Exchange (ISE) in 1986.
The ISE has shown remarkable growth in terms of the market value of shares traded and the volume of transactions. In 1995, total market capitalization of listed stocks on the ISE was $20,772 million, with an annual trading volume of $50,889 million. Although market capitalization places the ISE among smaller exchanges in Europe and the Middle East, the ISE is ahead of the stock markets in Tel Aviv, Brussels, Copenhagen, Helsinki, and Vienna with respect to volume of transactions. It can be characterised as a rapidly growing emerging market with high risk and high returns. Following the removal of capital controls in 1989, foreign investors were allowed to invest in Turkey without any restrictions.
Non-resident investors accounted for 7 percent of stock market transactions in 1995, but since they do not trade frequently, they have a much larger share of ownership in Turkish stocks. Privatisation Turkey was among the early adopters of the idea of privatisation at the beginning of the 1980’s. The idea behind privatising state-owned economic entities was the desire to have the government shift to the market mechanism for most economic activities and concentrate on its main functions in defence, education, health and justice. This way, efficiency would increase, industries dominated by state monopolies would open to competitive forces, capital markets would prosper and ownership of industrial wealth would be widely distributed among the people through the sale of shares of stock of privatised companies. Moreover, with the revenues raised through the sale of state-owned economic entities and reduced ongoing state subsidies on inefficient firms, the government would have more resources for investing in infrastructure.
The legal procedure to clear the way for the sale of state owned economic entities started in the early 1980’s and took much longer than initially anticipated. Three major pieces of legislation were enacted by the parliament in 1984, 1986 and 1994, with several amendments, as well as many government decrees. Opposition groups took parts of the legislation to the Supreme Court, which annulled them occasionally. Each time, the government issued a new decree or enacted another piece of legislation to clear the way for privatisation. The government agency in charge of divesting state-owned economic entities is the Privatisation Administration. Starting in 1985, a total of 157 economic entities and some state-owned assets were taken over by the Privatisation Administration for later divestiture. Some of the economic entities targeted for privatisation were 100 percent owned by the state, whereas others were corporations in which the state was a significant shareholder. Obviously they vary with respect to size.
Between 1985 and 1995, 108 entities were fully or partially privatised. However, with two exceptions, they were corporations with partial state-ownership, rather than 100 percent state-owned economic entities, the real targets for privatisation in terms of size and expected benefits. The state no longer has any interest in 89 entities, whose sale has raised $2.8 billion. In addition, the Privatisation Administration raised another $939 million from dividends and other income from these entities, to bring the total revenues to around $3.7 billion. On the other hand, $3.2 billion has been spent on the entities on the privatisation list, mostly in the form of new capital injections and loans to those that are problematic. The method of sale differs from case to case.
Private placement of equity is by far the most preferred method, constituting 45 percent of all sales. Other methods are public offerings of equity, sale of seasoned equity in the ISE, sale of fixed assets, and private placement in international markets. The real challenge to the privatisation program lies in the next few years. Among the entities that will test the success of the program are Trk Telekom, Erdemir and Petkim. Trk Telekom is the telecommunications monopoly which is targeted for sale in 1997.
It is probably the jewel of the crown in the whole privatisation program. Erdemir and Petkim are giants in iron and steel and petrochemical industries, respectively. The present administration has ambitious plans for their divestiture, successful implementation of which will determine the future course of privatisation. Recent Developments Related To The Banking Sector And the Financial System Under the Staff Monitoring Program with IMF the Turkish government launched a program aiming at sustaining stability, reducing inflation, described in the authorities’ Memorandum of Economic Policies of June 26, 1998. Main features of the program included; ? a large and sustained improvement in the primary budget balance, to narrow the large public sector deficits that lie at the heart of the inflation process; ? the adjustment of public sector wages and agricultural support prices in line with targeted inflation to minimise inflation inertia; ? structural reforms to ensure a lasting strengthening of the public finances; ? stepped up privatization to enhance economic efficiency and lower the domestic borrowing requirement; ? measures to strengthen the banking sector; and ? Limits on the expansion of the Central Bank’s net domestic assets to ensure the consistency of overall policies.
Turkey has made progress in the implementation of these economic policies. Developments in 1998 and 1999 clearly indicated the need to reinvigorate the adjustment effort through a comprehensive program of fiscal and structural reform. Within the context of the Government’s agenda certain fiscal and structural reforms have been realised recently. The major legal and regulatory measures related to the banking sector and the financial system are summarised below. June 1999 New Banking Law The government has passed a new Banking Law in June 1999, establishing an independent banking regulating and auditing institution. March 1999 Growth Compared to …