Turkish banking sector analysis Essay

This essay has a total of 11964 words and 80 pages.

turkish banking sector analysis


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.


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

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 Isçi Yatirim Bankasi (Türkiye 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

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 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

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

- 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%.


- 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


- 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.


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.


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 Communiqué No.6 went into effect in October, 1989, to
reduce the risk arising from inadequacy of capital in banks. Some articles of this

communiqué were amended in April 1993. With sufficient equity resources, banks
would be able to cover their risks in conformity with international standards.
Communiqué No.6 was amended by Communiqué No.12 issued in February 1995. Under this
regulation, capital adequacy principles comply with international standards.

On March 1, 1995 a new communiqué 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
Communiqué 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.


(As of January 1, 1998)




Iller Bankasi 1933
Türkiye Ihracat Kredi Bankasi 1963
Türkiye Kalkinma Bankasi 1975


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


Indosuez Euro Türk Merchant Bank 1989
Bankers Trust 1988
Taib Yatirim Bank 1987



T.C.Ziraat Bankasi 1863
Türkiye Emlak Bankasi 1927
Türkiye Halk Bankasi 1938
Türkiye Vakiflar Bankasi 1954


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
Koç Bank 1985
Milli Aydin Bankasi 1913
Oyakbank 1984
Pamukbank 1955
Sitebank 1991
Sümerbank 1933
Sekerbank 1953
Tekstil Bankasi 1986
Toprakbank 1992
Türk Dis Ticaret Bankasi 1964
T.Ekonomi Bankasi 1927
Türk Ticaret Bankasi 1913
Türkiye Garanti Bankasi 1946
Türkiye Imar Bankasi 1928
Türkiye Is Bankasi 1924
Türkiye Tütüncüler Bankasi 1924
Yapi ve Kredi Bankasi 1944
Yurtbank 1992


Arap-Türk Bankasi 1977
Birlesik Türk Körfez B. 1987
BNP-AK Dresdner Bank 1985
Midland Bank 1990
Osmanli Bankasi 1863
Türk Sakura Bank 1985
Turkish Bank 1982
Ulusalbank 1985


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

Wien T.Vakiflar Bankasi
Yapi ve Kredi Bankasi
Central Bank
T.C.Ziraat Bankasi
T.Halk Bankasi
Central Bank
T. Emlak Bankasi








T.Vakiflar Bankasi
T.Vakiflar Bankasi
Central Bank
T.C.Ziraat Bankasi
T.Halk Bankasi
T.Emlak Bankasi
T.Vakiflar Bankasi
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
Central Bank
T.C.Ziraat Bankasi
T.Vakiflar Bankasi
T.Emlak Bankasi
Turk Ticaret Bankasi
T.Tutunculer Bankasi
Yapi ve Kredi Bankasi
T.Is Bankasi
T.C. Ziraat Bankasi
T.Halk Bankasi
T.C.Ziraat Bankasi
T.Halk Bankasi
T.C.Ziraat Bankasi
T.Halk Bankasi
T.Imar Bankasi
Yapi ve Kredi Bankasi
T.Emlak Bankasi
T.C.Ziraat Bankasi
T.Emlak Bankasi
T.Halk Bankasi
Yapi ve Kredi Bankasi
T.C.Ziraat Bankasi
T.Halk Bankasi
Yapi ve Kredi Bankasi
Yapi ve Kredi Bankasi
Tehran Pamukbank
Luxemburg T. Garanti Bankasi
Malta T.Garanti Bankasi
Den Haag
T.Halk Bankasi
T.Is Bankasi
T.C. Ziraat Bankasi
T.Emlak Bankasi
T.Garanti Bankasi
Federation of RUSSIA
Iktisat Bankasi
T.Garanti Bankasi
Yapi ve Kredi Bankasi
T.Garanti Bankasi
T. Is Bankasi
T.Halk Bankasi


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
Central Bank
T.C. Ziraat Bankasi
T.Is Bankasi
Yapi ve Kredi Bankasi
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
Deutsch Turkish Bank AG.
Express Trade Bank (Berlin) GmbH Germany
Is Bank GmbH
Banque International de Commerce SA. Germany
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
Sabanci Bank P.L.C.
Macaristan-Halk Bank UK
Russian-Turkish Bank
Yapi Toko Bank Federation of Russia
Federation of Russia
Kazakhstan International Bank
Kazkommerts-Ziraat International Bank Kazakhstan
Inter Overseas Ltd.
Inter Capital Ltd. Islands
Turk Boston Bank Europe Ltd.
Uzbekistan-Turkish Bank Ireland
Turkmen-Turkish Int.Comm. Bank.
Uluslararasi Turkmen-Halk Kalkinma Bankasi 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


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 Türk Telekom, Erdemir and Petkim.
Türk 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


Compared to the same period of the previous year, the total assets of the Turkish banking
system grew by 88 percent in nominal terms and reached TL 42,896 trillion by the end of
March 1999. Within the commercial banks groups, the growth rates were 90 percent for both
state-owned banks and foreign banks and 95 percent for privately owned banks, while the
total assets of the banks under the Deposit Insurance Fund increased only by 24 percent. A
slow growth of 57 percent was observed in the development and investment banks.

Turkish Banking System, March 1999

Trillion Annual per. Change USD
Million Annual
per. change Dec. 1998
per. change

Commercial banks 40,933 90 111,417 25 -1
State-owned 14,549 90 39,603 25 -3
Private 23,208 95 63,171 28 1
Banks in Fund 1,103 24 3,002 -19 -19
Foreign banks 2,073 91 5,641 25 10
Dev. and inv. banks 1,936 57 5,271 3 -5
Total 42,869 88 116,688 23 -1

The total assets of the banking system grew by 23 percent in dollar terms and reached USD
116,688 million. On the other hand, the total assets of the banking system declined nearly
by 1 percent compared to the end of the previous year. Accordingly, total assets declined
in the banking groups excluding the state-owned commercial banks and privately owned
commercial banks.

Sector Shares
The share of the commercial banks group in total assets reached 95.5 percent, increasing
by one percentage point. Within the same group, the share of the state-owned banks rose
from 33.6 percent to percent 33.9 percent, and the share of privately owned banks
increased from 52.3 to 54.1, while the share of foreign banks remained almost the same at
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